Despite a strong inflow of positive news the Hungarian forint retreated slightly yesterday

Despite a strong inflow of positive news the Hungarian forint retreated slightly yesterday and the EUR/HUF pair bounced back above the 260. The negative price action should be explained by profit-taking, which was visible in the whole region yesterday and in particularly the Polish zloty. Regarding the positive news: first, Economy Minister Koka announcement that the government abandoned its plans to completely fund its expensive motorway program and instead it would use a mix of bond sales (EUR 1.18 will be issued in 2006), official loans and privatization sources (the motorway company – AAK - will listed on the BSE). According Minister Koka the government is now confident that Eurostat will treat the AAK as a private company. So, its liabilities will be left outside the public accounts, which will make it easier for he country to cut the budget deficit. The second positive news came also from the fiscal front as a release of the April public budget.

The actual deficit was materially below the Finance Ministry’s forecast. While the Ministry’s projection was HUF 984.4 bn, the accumulated public sector deficit in January-April reached just HUF 904.2 bn (58.5 % of the full-year target). However, as mentioned the market shrugged off this positive domestic news and we do not overestimate it either. Finance Minister Veres added to the release of the budget figures that the government will submit an awaited program of budget tightening measures to Parliament by the end of May. Hence, let’s wait for the end of May to get a better picture of the country’s fiscal outlook. Today, the April foreign trade figure is in focus. The foreign trade posted a deficit of EUR 266 mln. The figure came out above the market consensus (EUR 191 mln), but the CSO said that the trade was affected by the import of fighter jets. Hence after adjusting these items, the figure should be more in line with the market forecast. So the impact on the forint should be rather neutral and the FX market could continue watching to emerging markets universe ahead of the FOMC meeting.

(CSOB - Investment research)