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Matolcsy May Back Radical Hungary Debt Step, Capital Says

Hungary’s new central bank president, Gyorgy Matolcsy, may back “more radical options” to reduce foreign-currency debt as he seeks to boost the economy with unconventional steps, Capital Economics Ltd. said.

The Magyar Nemzeti Bank may support the conversion of household foreign-currency debt into forint at below-market rates, Neil Shearing and William Jackson, London-based Capital economists, said in an e-mailed note today. Commercial lenders or the central bank via its currency reserves, would bear the losses, they said.

In his previous job as economy minister, Matolcsy was the architect of Prime Minister Viktor Orban’s unorthodox policies and urged the central bank to embrace unconventional monetary tools after his budget policies helped push the economy into recession. The Cabinet and central bank will discuss the use of reserves to spur growth and help foreign-currency mortgage holders, Economy Minister-designate Mihaly Varga said yesterday.

“With the MNB now more open to unorthodox measures to pull the economy out its malaise, attention could turn to reducing the FX debt burden,” Shearing and Jackson said. “It looks increasingly likely that unorthodox policies” may be considered, including “more radical options.”

Currency Moves

The forint has weakened 5.4 percent to the euro in the past three months, the most among 25 emerging-market currencies tracked by Bloomberg, amid investor concern that Matolcsy will take over the central bank. The currency was little changed today at 298.63 per euro by 3:25 p.m. in Budapest.

Matolcsy, as economy minister, forced banks in 2011 to swallow exchange-rate losses on foreign-currency household mortgages by allowing for their early repayment at below-market prices. Hungarians had borrowed mostly in Swiss francs to take advantage of lower interest rates. Along with Europe’s highest bank levy, the measure made the banking sector unprofitable, damaging lending and growth.

Any new plan to help foreign-currency borrowers would be done in cooperation with commercial lenders, Varga said in a Magyar Hirlap interview published today.

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