The Hungarian forint firmed a touch as it tracked the CZK and PLN higher. The unit erased previous modest losses as the EUR/HUF drifted to the 251.0 support, which was successfully broken in the afternoon. Today, the FX market will definitely monitor a development in the domestic bond market, which should be busy. First, the bond market should digest a release of the December CPI figures, while an interesting 5Y and 10Y bond actions will follow.
National bank’s governor Jarai stressed the necessity of spending cuts (at least USD 4.73 bn) to reduce the budget deficits to 3% of GDP. He said that fiscal adjustment is unavoidable but we can only add that neither the present government nor the opposition plan restrictive fiscal policy and nearly all resigned to early euro adoption. Due to a cut of VAT rate the y/y inflation falls from 3.3% to 2.7% which is in the line with our expectation but much higher than the market expected (Reuters consensus was 2.4%). We think that the worse figure will reduce the cut expectation and the forint will stay in narrow range 250.7-251.4 EUR/HUF today.
(CSOB - Investment research)