Hungary cuts foreign currency reserves

The Hungarian central bank is cutting its foreign currency reserves and bonds as components of a three-part plan to trigger economic growth through small business loans, bank governor Gyorgy Matolcsy told a news conference Thursday. 

The bank will cut foreign currency reserves by 3 billion euros (3.83 billion U.S. dollars) and slide the two-week bonds from 4,500 billion forints (about 19 billion U.S. dollars) to 3,carbon fabricAntique faucets600 billion.Clawfoot tubs 

This move is necessary to reduce the vulnerability of the Hungarian financial system and to cut its short-term debt, said Matolcsy. 

This was the first public announcement by Matolcsy since taking over the helm of the National Bank of Hungary a month ago. He had suggested his willingness to introduce "unconventional" monetary measures to boost the economy before taking over the bank. 

Under a loan scheme, the central bank will offer commercial banks loans at zero percent interest, which the commercial banks can then lend to micro, small and medium-sized enterprises (SMEs), charging them a 2 percent interest rate plus a possible loan guarantee fee of 0.Used loaders5 percent. 

The bank is offering 250 billion forints to go into these components of the program which also gives SMEs the chance to borrow the co-financing needed to apply for European Union grants, at the same low interest rate. 

Matolcsy likened his scheme to one the Bank of England already has in place. 

Investment in Hungary is at record lows and the government and central bank are counting on the low-cost loans to light a spark under the economy, which contracted by 1.7 percent last year. According to a written statement issued by the bank, if 250 billion forints in new loans enter the economy, the inflow to the central budget can increase by as much as 100 billion forints. 

Adam Balog, a deputy governor of the bank, said that a one percent rise in business loans will result in the economy growing by more than 0.1 percent. 

However, many commercial banks feel that the low investment rate has been caused by a lack of demand for loans rather than hesitancy on the part of banks to lend. 

In the third part of the scheme,tyre equipments the central bank is offering SMEs the chance to borrow low-cost money to convert a portion of their foreign currency debts to forint debts. 

According to the central bank, 54 percent of SME loans are in foreign currencies. Under the new central bank project, businesses will be able to borrow at low interest rates to convert 30 percent of their foreign currency debts into forints at prevalent exchange rates. 

A written statement issued by the central bank calculated that the total loan amount will come to 4 percent of overall domestic bank business loans and to 7 percent of overall loans to SMEs.