Hungarian gov't to extend interest rate freeze by another six months

The US government's economic policy is to increase domestic consumption and reduce the US trade deficit. The question is whether the EU can reach a win-win agreement, and whether it can negotiate with Trump, Gergely Gulyás said on the expected tariffs. "We do not think that every move Trump makes will be good for Europe and Hungary, but that is peace," he stressed.

Asked about this, Gulyás said that this is a US sanction, so "it affects those partners who do business with America, but only those partners." He was adamant that "there is a solution" and that it was "not certain" whether a new entity would even need to be created for the Hungarian state-owned company to pay Gazprom's gas bill. Overall, he stressed that the US sanctions move

does not pose a problem for the country in meeting its payment obligations.

On 21 November, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) took another major step in implementing commitments made by G7 leaders to curtail Russia’s use of the international financial system to further its war against Ukraine. OFAC’s action includes the designation of Gazprombank, more than 50 internationally connected Russian banks, more than 40 Russian securities registrars, and 15 Russian finance officials.

The US sanctions against Gazprombank constitute an attack on Hungarian sovereignty, Péter Szijjártó, Minister of Foreign Affairs and Trade, wrote on Facebook six days ago. He argued that the security of the country's energy supply is a matter of sovereignty.

He said the inclusion of Gazprombank on the sanctions list is a deliberate attempt to put some Central European countries in a difficult situation.

Türkiye is negotiating with the United States to get a waiver from sanctions against Gazprombank so that it can continue to pay the Russian gas giant, Gazprom, for gas supplies.

“Hungary is grateful to Türkiye, Bulgaria and Serbia for ensuring a very safe, very reliable and very stable transit,” Szijjártó said at the Istanbul meeting where he reviewed the situation with the energy ministers of Türkiye, Azerbaijan, Bulgaria and Serbia. Together “we will find a solution to ensure the safety of our energy supplies.”

Gergely Gulyás suggested listening to Prime Minister Viktor Orbán's radio interview on Friday morning for those who are curious about who will be the new central bank (MNB) Governor in Hungary.

Economy Minister Márton Nagy said earlier this week that it would turn out in a few days who will succeed György Matolcsy at the helm of the MNB and who will be heading the new ministry to be created by the merger of the Economy Ministry and the Finance Ministry.

Everything points to the appointment of Nagy as the new 'top minister' and Finance Minister Mihály Varga to take over the steering wheel at the central bank. PM Orbán has recently noted that "for one of them [it's] a swan song, for the other [it's] a nice overture."

Monetary policy is the responsibility of central banks everywhere in Europe, said Gulyás in response to a new question on the forint exchange rate. The central bank has excellent financial experts. Speculation could be behind the forint depreciation, he added.

The Hungarian government shares the concerns. For a long time, we have been calling in all international forums for the need to avoid direct confrontation between nuclear powers, Gulyás said in response to a question on whether the Hungarian government shared the German intelligence chief's view that the threat of a Russian attack on NATO in the coming years could not be ruled out. Gulyás stressed: we hope that Biden's government will not go down in history as leaving behind an escalation of almost unmanageable proportions.

As for the voluntary interest rate cap undertaken by the banks, Gulyás stressed that the conditions set by the banks can contribute to positive developments if such housing is built. This is an indirect effect, but the direct impact of this measure is minimal or non-existent. Therefore, this bank plan is not sufficient, he added.

We are asking banks to use terms and conditions that allow more homes to be eligible [for the preferential interest rate]. Maybe the maximum price per square metre of 1.2 million is not enough, and maybe they should not demand the highest energy efficiency grades.

Lowering the electoral threshold?

Gulyás was asked if the government would support a change to the parliamentary entry threshold. He replied that the Hungarian electoral system is fine as it is. He recalled that the electoral threshold was changed once in the past decades (from 4% to 5% in the 1990s), the only new proposal is to change constituencies, and this is justified in the interest of voters.

"We have a proportional system, it has tested well," he said.

There is no need to change the 5% threshold or anything else.

"I don't see the need for any change beyond that," he added.

He reminded that the only changes that can be implemented before the 2026 elections are those that are submitted by 31 December this year and whatever they want to modify is already before Parliament by then.

The exchange rate is a matter for the central bank, Gergely Gulyás said in response to a journalist's question. The Hungarian government respects the independence of the central bank, he added.

What I can say is that it is good for the Hungarian economy if the shifts in the forint exchange rate are not hectic.

The government has no exchange rate target. Investors have predictability, they can plan for the long term if the exchange rate is stable.

This is currently not the case, as the last few weeks attested. We hope that this can be eliminated, said Gulyás. He said the central bank is able to guarantee predictability.

While Hungarian economic policy has the tools to combat inflation, and it was necessary to get involved in this fight, the central bank has almost all the tools in terms of the exchange rate. Primarily by shaping interest rate policy, he explained.

The government cannot intervene in this, he said. What we can intervene with is deficit reduction and GDP growth. According to Gulyás, the budget deficit will fall and the economy will grow next year.

GDP growth

According to Gulyás, the fact that BYD, CATL and BMW will start production next year will give a boost to the Hungarian economy. He recalled that the government expects GDP growth of 3.4% by 2025.

Air defence

We have reinforced the air defence of the part of the country close to the [Ukrainian] border, Gergely Gulyás said, in the context of the escalation of the Russian-Ukrainian war and the Russian attacks on Transcarpathia. We oppose the increase in arms transfers [to Ukraine], he stressed.

Interest rate cap

The interest rate freeze will be extended by another six months, Gulyás said. Families' interest burden should not increase, because in the current interest rate environment there is no reason to abolish this measure.

The extension is not a surprise, according to our recent analysis, as the banks themselves were expecting it, as the spread between the current 6.5% BUBOR and the 2% reference rate of the interest rate freeze remains wide, and there is no prospect of a significant narrowing for the time being.

However, the bad news for the market is that there is still no talk of when the measure will be phased out, which is what the banks would like to see and would be a sensible move.

According to the central bank's Financial Stability Report published on Wednesday (full report here): "With the lower interest rate environment, the phase-out of the interest rate cap on mortgage loans at the end of 2024 may cause payment difficulties only for a limited group (5%) of the debtors concerned, and they only account for 2% of total household mortgage debt."

Interest rate ceiling

Banks are too strict about the 5% interest rate cap. Gulyás stressed that banks are encouraged to change the conditions so that a wider range of homes can benefit from it.

As of next spring, buyers under the age of 35 who purchase their first energy-efficient home of less than 60 square metres will be eligible for a discounted home loan with an interest capped at 5% for the first five years. Another condition is that the price per square metre of the property must not exceed HUF 1.2 million. Eligible people can apply for the low-interest loan between April and October 2025. 

However, only 1% of the apartments for sale of up to 60 sqm meet the strict banking criteria,

according to an analysis by ingatlan.com, which also describes the current selection and the specific asking prices.

There are currently 16,000 homes for sale of less than 60 square metres available in major cities. Of these, 5% meet the A+ energy consumption criteria. And the HUF 1.2 million price ceiling further narrows the choice, as only 1.4% of homes smaller than 60 square metres qualify for bank loans at the preferential rate, said László Balogh, chief economic expert of ingatlan.com on Wednesday.

In Budapest, the typical price per square metre is HUF 1.5-2 million for low-energy apartments. Young people stand a better chance in county seats where nine out of ten A+ homes are below the price ceiling of HUF 1.2 million per square metre. 

2025 budget

The aim is affordable housing. House prices have risen sharply, but next year's budget will ensure affordable housing, stressed Gulyás. SMEs will be helped by the Demján Sándor Programme, the child tax credit will be doubled in a year, and the 13th month pension will be cemented, he said, recalling measures announced earlier.