The Hungarian forint firmed yesterday as better-than-expected foreign trade data and gains of other CE currencies helped. Nevertheless the currency’s gains very limited since the EUR/HUF pair opened at the 251.55 level and closed at 250.95. Intra-day: the forint opened the session in positive territory thanks to the release of the December foreign trade figures. Recall that the deficit (EUR 189.4 m) came around the level recorded in December 2004, which means the gap was lower than analysts’ consensus. The forint that retreated slightly, while the market shrugged off comments from Finance Minister Veres, who confirmed a commitment of the ruling Socialist party to meet the euro (Maastricht) criteria by 2008. Veres said the budget deficit would need to be cut to HUF 700-800 billion by 2008 to drop below 3% of GDP (e.g. below EMU reference value).
According to Veres a new socialist government will be ready to cut public expenditures and boost revenues (Finance Minister mentioned rising the 15% VAT rate to 20%, which is currently the top VAT rate), if it is re-elected in April’s elections. Since the current government has a very poor fiscal record, it is not surprising that such official commitments are not credible now (and the forint could benefit from Veres’ words). On the other hand, Finance Minister disappointed with the information that the February public budget deficit will offset a smaller-than-expected deficit posted in January, so the deficit after the first two months will be as planned. Today, the only item on the domestic agenda is the NBH Minutes from January’s of the Monetary Council. The content of the Minutes will be especially interesting for the bond market. So should domestic bonds digest the Minutes in a positive way, the forint could gain too. Though, the resistance at the EUR/HUF 250.0 will probably remain intact.
ČSOB Investment Research