© Reuters. Hungarian Prime Minister Viktor Orban arrives for the European Union Summit in Brussels, Belgium, on December 15, 2021. REUTERS/Joanna Geron/Pool/File Photo
BUDAPEST (Reuters) – Hungary will freeze interest rates on retail loans for six months from January, the prime minister said on Wednesday, the latest measure to protect households from rising costs ahead of a potentially hotly contested national election.
Hungary’s central bank, the first bank in the European Union to start raising borrowing costs since the start of the coronavirus pandemic in early 2020, has raised its key rate by 180 basis points since June to its highest level since May 2014.
Hungarian inflation rose to a 14-year high of 7.4% in November, above expectations, led by higher prices for fuel, alcohol and tobacco. Prices for services increased by 4.6%.
The central bank said it would need to keep raising interest rates until next year to curb high price growth and rising inflation expectations.
“Inflation affects other areas, for example, interest rates on loans taken earlier,” Prime Minister Viktor Orban said in a video on Facebook (NASDAQ :). “So, we need to build new lines of defense. We are in the process of freezing retail rates.”
Urban said interest rates on individual mortgages will be held at end-October levels, which will lower repayments from February.
At 1412 GMT, shares in the Hungarian OTP Bank were down 2.3% at 16,495 forint ($50.61), outperforming the leading Budapest Stock Exchange, which fell 0.7%, largely affected by a decline in OTP shares.
Currency traders said the announcement also affected the forint, which is just about one percent below an all-time low of 372 against the euro hit in November.
Spokespeople for OTP and the Hungarian Banking Association did not immediately respond to emailed requests for comment. A central bank spokesman declined to immediately comment.
The central bank expects inflation to average around 5% this year and next, pressured by global supply chain disruptions, rising energy prices and domestic factors, such as tight labor markets and big wage hikes in the run-up to next year’s vote.
For the first time since taking power in the 2010 election, the 58-year-old will face a united front of opposition parties in the poll, likely to be held in April, which includes the Democratic Alliance, socialists, liberals and. Jobbik was formerly far right, now center right.
Urban announced a cap on fuel prices last month to protect consumers from sharp price increases, targeting key voting groups, such as career start-ups, families and retirees with big tax breaks and higher pre-election payouts.
(1 dollar = 325.95 forints)
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