UPDATE 2-Hungary takes emergency action to strengthen business and liquidity against coronavirus

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BUDAPEST, March 16 (Reuters) – Hungary’s central bank on Monday announced emergency measures to prop up the economy against the fallout from the coronavirus, expanding the range of collateral it accepts from banks and urging lenders to apply a moratorium repayment of loans to disaster-stricken businesses.

Nationalist Prime Minister Viktor Orban, facing the biggest challenge of his ten-year reign, said Hungary would need monetary and fiscal tools to mitigate the likely economic impact, including significant job losses, of the viral pandemic.

The National Bank of Hungary imposed a moratorium on loan repayments under its massive finance-for-growth program that had provided small businesses with cheap loans.

The BNH also injected forint liquidity into the banking system on Monday through its currency swaps and announced new daily tenders to provide even more short-term liquidity.

The BNH said loans to productive enterprises on the balance sheets of national banks totaled nearly 3.6 trillion forints, and that it would apply a 30% haircut on these, widening the range of authorized collateral and thus increasing the lending potential of banks.

“As a result, the total value of collateral that can be used (…) will increase by more than 2.5 trillion forints ($ 8.10 billion),” the BNH said in a statement.

“Accepting business loans as collateral significantly supports business loans and increases their liquidity value … and (the measure) also improves the liquidity position of banks. “

The NBH, Central Europe’s most accommodating central bank, announced the measures as the forint fell to a new all-time low of 344.90 per euro, and the region’s stock markets plunged in all areas as investors offloaded assets alarmed by the negative impact of the coronavirus on the balance of the sheets.

Hungarian interest rates are the lowest in Central Europe, with a base rate of 0.9% and the demand deposit rate in negative territory at minus 0.05%.

Last week, Hungary’s finance minister flagged the possibility of a recession as the worst-case scenario. Assessing the economic impact, some investors said the recession in the Hungarian economy – which grew 4.9% last year – could turn out to be worse than after the 2008 financial crisis.

Zoltan Torok, economist for Raiffeisen in Budapest, said the economy had “suddenly come to a halt” and that he expected a contraction exceeding the 6.7% drop recorded in 2009, with a massive increase in unemployment.

ING’s Peter Virovacz said his worst-case scenario was a 1% drop in the economy, depending on supply chain issues.

Hungary has recorded 39 coronavirus infections, one of which has died. ($ 1 = 308.65 forints) (Report by Gergely Szakacs and Krisztina Than edited by Mark Heinrich)

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