Hungary central bank seeks to boost lending

The newly-appointed head of Hungary's central bank announced a new loan programme for businesses struggling to repay foreign denominated debts as the country suffers through recession.

"Foreign currency-denominated debt makes small and medium-sized companies (SMEs) very vulnerable, so we will do everything to minimise this risk," MNB head Gyorgy Matolcsy said after an extraordinary meeting of the bank.

The central bank will offer commercial banks 250 billion forints (831 million euros) at zero percent, which they can then loan at no more than 2.0-percent interest, plus a possible 0.5 percent as a guarantee fee, he added.

Matolcsy, whose appointment in March by Prime Minister Viktor Orban raised fears of increased government control over monetary policy, said the offer would run until August.

In February Matolcsy, while still economy minister, said that the MNB had many tools to boost the economy, which shrank 1.7 percent in 2012.

His comments led to a weakening of the national currency based on speculation the bank would implement damaging policies that could fuel inflation.

In its annual check-up report, the International Monetary Fund warned Friday that increased state interference and "frequent and unpredictable" changes in policy were undermining investor confidence in Hungary.

Immediately after Thursday's announcement, the forint weakened slightly against the euro, trading at 304.40 after the announcement compared with 303.00 before, but then bounced to 300.38 by 1100GMT.