CEE markets were generally calm yesterday and awaiting for today’s US job report. Stable prices yesterday is a generally good sign in our view as currencies rallied sharply before on Wednesday and they were able to maintain their strength on the next day.
Situation in Hungary is by far the most exiting and the government still seems to try to support the economic growth with a program, like restructuring EU funds and transfers to SMEs towards more production based investments. This however risks the possibility that the government’s growth forecast will be seen as too optimistic since most of the economists now expect a recession for Hungary in 2012 partly because some foreign banks will have to drastically improve their loan/deposit ratios. The growth forecast could be a key point in the upcoming IMF talks and probably this is the reason why the government has been talking to the central bank about it. A weaker growth outlook may also require additional fiscal measures, especially if the IMF opens only the stand-by loan facility instead of the precautionary credit line.
Overall, we expect range-bound trading in Hungary and stabilisation of bond market and the forint as long as there is the hope of an IMF agreement. Should however the government move away from this possibility and markets may react quickly.