Hungary is set to make a decision on whether to go ahead with a technical change to the calculation of loan repayment rates within the next few days.

The initiative aims to reduce the cost of borrowing and boost the country's economy, yet it has received criticism from the Bank of Hungary.

Finance Minister Mihaly Varga said during an interview on Sunday with private news site index.hu that the government will make a decision this week on whether to replace interbank rates with Treasury bill yields as the new benchmark for corporate and retail loans, Reuters reports.

The move falls within Prime Minister Viktor Orban's efforts to bolster Hungary's economy, but last week, the central bank said it was "misguided" and would limit the range for policy manoeuvre.

Varga said during the interview: "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. However, the market reaction has shown that the market has not quite understood the purpose of the initiative."

A rise in inflation in 2023 to 25%, the highest in the European Union, tipped the country's economy into recession.

However, although growth is forecast to resume this year, it may fall short of the government's forecast of 3.6%, according to a recent poll by Reuters news agency.

Furthermore, last week, S&P Global financial institutions analyst Lukas Freund said the proposal was another example of Budapest's unconventional policy aimed at strengthening the economy but represented a risk to the financial sector.

In response to the Bank of Hungary's criticism, the government last week said the bank had mismanaged the root cause of the issue as the spread between the Budapest Interbank Offered Rate (BUBOR) and Treasury bill yields increased to around 250 basis points.

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