Another government intervention in interest rate policy

HUNGARY - In Brief 01 Jun 2023 by Istvan Racz
Today's story is not so much the fact that the European Parliament approved a resolution asking the EU Council to find a way to avoid Hungary's six-month presidency in the EU in H2 2024, a critical period right after the election for the EP, due in June next year. That is something for the EU and the Hungarian government to worry about. Instead, investors should be concerned with a series of new government decrees, which came out during the night, with a view to taking effect mostly within one or two months from now. These include the following measures: 1. Individual investors will have to pay a withholding tax of 28%, rather than the 15% paid so far, on all of their income from financial investments except for shares, units of funds  investing in property and, most notably, domestic government bonds and T-bills;2. Investment funds will have to hold at least 20% of their liquid assets in domestic government debt, and the share of bonds other than HUF-denominated government debt will be limited to maximum 5% of total assets;3. Banks will be able to reduce their liability under the existing 'extra profit tax' in 2024 if they hold more domestic government debt in their portfolios; and finally4. Banks will be required to send a letter to each of their individual clients on one occasion, showing how much more the clients could have earned by investing in government debt instead of holding their savings in the bank's deposit products. The mastermind behind these steps appears to be economy minister Nagy once again. He said this morning he expects from the new measures some HUF1300bn of new demand for government debt from banks, HUF500bn extra from investment funds, and seve...

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