Aurelia Butler

In an interview published on Sunday, Finance Minister Mihaly Varga told private news site index.hu that the government will decide next week on its proposal to replace interbank rates with Treasury bill yields as the new, much lower benchmark for corporate and retail loans.The move is part of Prime Minister Viktor Orban’s efforts to revive Hungary’s economy, but its central bank on Thursday criticised it as “misguided”, saying it would reduce the scope for policy manoeuvre.In the interview Varga was quoted saying: “I am confident that by next week we will have a decision that is good for the financial institutions and good for the government as well.” “(The proposal)is a perfectly legitimate point,” he said on the sidelines of a conference which took place on Saturday. “However, the market reaction has shown that the market has not quite understood the purpose of the initiative.”A surge in inflation last year to 25%, the highest in the European Union, pushed Hungary’s economy into recession, and while growth is expected to resume in 2024, a Reuters poll this week suggested it would miss the government’s 3.6% forecast.S&P Global financial institutions analyst Lukas Freund told Reuters earlier this week the proposal represented another example of Budapest’s unconventional policy, which aimed to boost the economy but posed a risk to the financial sector.The government responded last week to the central bank criticism by saying the bank had mishandled the root cause of the problem after the spread between the Budapest Interbank Offered Rate (BUBOR) and Treasury bill yields widened to around 250 basis points. More

JERUSALEM (Reuters) – Israel’s sovereign credit rating could be cut if the war with Palestinian Islamist group Hamas expands to other fronts, but if this does not happen it should be able to weather the war’s economic fallout if it makes needed budget changes to offset higher spending, an S&P Global Ratings director said.S&P in October affirmed Israel’s ‘AA-‘ rating but revised Israel’s outlook to “negative” from “stable”, citing risks that the Israel-Hamas war could spread more widely with a more pronounced impact on the economy and security situation in the country. “The negative outlook on the ratings implies that we currently see at least a one-in-three chance of a downgrade over the next one to two years,” said Maxim Rybnikov, director of EMEA Sovereign & Public Finance Ratings at S&P, told Reuters in e-mailed comments.He said that if Israel’s security and geopolitical risks increase due to an escalation of the conflict – a direct confrontation with Hezbollah in Lebanon or Iran – that could lead to a downgrade. “We could also lower the ratings if the impact of the conflict on Israel’s economic growth, fiscal position, and balance of payments proves more significant than we currently project,” Rybnikov said. He said S&P projects Israel’s economy will grow by just 0.5% in 2024 and have a cumulative budget deficit of 10.5% of GDP in 2023-2024 “but there are downside risks to these assumptions.”He said he was following discussions on the 2024 budget, which was reopened to include billions of shekels of spending on the war.The cabinet this month passed a disputed 2024 state budget with amendments adding 55 billion shekels ($15 billion) of spending. It still needs parliamentary approval.”The big question for us is what happens next,” Rybnikov said.Critics of the budget, including the Bank of Israel, are seeking a cut in nonessential spending and to raise some taxes to offset the war-related costs. Also, some planned cuts to health and internal security were scrapped to ensure passage of the budget in the cabinet.Some 20 billion shekels a year for defence has been added to the budget. Bank of Israel Governor Amir Yaron has urged the government not too spend excessively and to offset spending increases needed for the war with reductions elsewhere, along with tax hikes – items that government leaders have dismissed.”Given Israel’s other credit characteristics, a temporary deterioration in the fiscal position can be weathered,” Rybnikov said. “However, if … the budgetary position turned out to be persistently weaker beyond 2024, without offsetting measures, this could erode Israel’s fiscal room to manoeuvre.”He said his base scenario is that the conflict will be resolved soon and the budget deficit will move back to 3% of GDP in 2025, from 4.2% in 2023 and a projected 6.6% in 2024, but that there were substantial risks of a lingering or escalating conflict.”It is already clear that defence spending will be higher in the years to come and the longer-term impact of the war on FDI (foreign direct investment) flows, investor sentiment and other areas remains uncertain,” said Rybnikov.”A persistent, as opposed to temporary, increase in net general government debt without offsetting measures could pose risks. That’s one of the reasons why the ratings are currently on a negative outlook.”He said the ratings outlook could move back to stable if the conflict is resolved, resulting in a reduction in regional and domestic security risks without a material longer-term toll on the economy and public finances.Credit ratings agency Moody’s (NYSE:MCO) declined to comment. Moody’s in October placed Israel’s A1 ratings on review, citing the conflict with Hamas.Fitch Ratings put Israel on rating watch negative in October. Fitch did not immediately respond to a request for comment.($1 = 3.6832 shekels) More

Scholz told a conference in Berlin for European delegates of his Social Democrats (SPD) party that this was a key issue for economic growth and the creation of jobs in Europe. The single market is far too fragmented, especially when it comes to financial issues, which is why the EU, with more than 400 million inhabitants, is unable to make full use of its power, he said. “That’s why we need to complete the European project so that European companies can rise,” Scholz said. The plan to create a single market for capital has been on the table since 2015 without any real progress. Scholz also called for a minimum tax rate for companies of 15% to be introduced in all EU countries. “Isn’t that possibly also the basis for the banking and capital markets union to work?” he asked. There has been concern that banks would choose to be based in an EU country with very low taxes “and if things go wrong, all European taxpayers will have to pay,” Scholz noted.The heads of EU institutions called for a strengthened euro and progress towards a capital markets union in a joint appeal in December. More

“We now have a credible prospect that inflation will return to 2% in 2025. The only piece that’s missing is the conviction that wage growth will adapt to that lower inflation”, the Dutch central bank governor said in an interview with Dutch TV program Buitenhof.”As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit.” More

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