"We will launch a swap operation for Swiss francs against euros", while the Hungarian central bank would provide Swiss francs for Hungarian forints, a spokesman for the Swiss National Bank told AFP.

About 60 percent of loans taken out in Hungary in recent years, especially for property, were in euros and Swiss francs instead of the local unit, with reports saying recently the proportion was close to 90 percent for 2008.

Hungarian borrowers were tempted by the lower interest rates available in some other European currencies, a tactic that worked well while exchange rates were stable but not in the disorder of the past 18 months.

As a result, with the stronger Swiss franc and weakening forint, thousands of Hungarian borrowers are in danger of being unable to repay their debt, adding to the pressures on the already weak economy.

On 16 January, the Swiss, European and Polish central banks announced they would extend weekly swap operations at least until the end of April 2009 to strengthen short-term Swiss franc borrowing and lending in Poland.

The Swiss National Bank spokesman said the agreement with Hungary would be similar to the Polish one and was almost concluded but he declined to give a launch date.

The Hungarian central bank announced a half a percentage point cut in its key interest rate Monday to moderate a looming recession, a few days after the European Central Bank cut borrowing costs by a similar amount.

The Hungarian base rate will be set at 9.5 percent from Tuesday.

By contrast, Switzerland’s key interest rate stands in a range of zero to one percent, mirroring levels seen at the beginning of the 2000s. Reliable high street banks here are offering home loans in Swiss francs at rates of around 2.9 percent.

[AFP / Expatica]