Favourable global investor sentiment on Thursday has helped Hungary’s forint to work off its losses suffered on Wednesday. The better mood is related to the EU summit and increased confidence that Budapest will finally be able to sit to the negotiating table with the IMF/EU on a financial assistance package, as the cabinet apparently dispersed all concerns about central bank (NBH) independence with its new amendment proposal to the central bank law. But in the afternoon the HUF started to ease again and hit a one-week low versus the euro. This has to do with the newly announced government plans that indicate a major softening of the 2013 budget.
Why is the forint falling? - 15:43
The forint’s depreciation may be related to what has been revealed today, namely that the cabinet plans a massive softening of the 2013 budget. Economy Minister György Matolcsy’s HUF 300 billion growth-stimulus package is in fact the spending of fictional revenues.
The source of the scheme (on paper) is HUF 100-100 bn forints that the government hopes to collect from the central bank (NBH) and the Treasury as financial transaction tax and another HUF 100 bn it wants to “borrow" from HUF 320 bn budget reserves.
The cabinet has also given up part of the previously targeted transaction tax revenues by putting a cap on the sum payable per transaction. This is good news from a financial stability point of view, but on the other hand it has just made the related budget risks bigger.
Overall, the scheme announced today implies a HUF 350-450 bn fiscal easing, which will be either patched up by the government or there will be a nice big hole on the 2013 budget only a week after the EU lifted the suspension of development fund payments for Hungary.
The forint has switched into easing mode after hovering in a narrow range before. This had to do with the moderate disappointment over the EU summit and the fact that with relation to an amendment proposal to the planned financial transaction tax the government would considerably soften next year’s budget.
EUR/HUF went to around 288.50 in the afternoon session, which marks a one-week low for the HUF.
Poland’s zloty also eased in tandem with the forint, but the Czech koruna that has been an underperformer over the past few days is gaining strength (the Czech central bank has lowered the two-week repurchase rate by a quarter-point to 0.5 percent today, in line with forecasts)
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