The negative sentiment on emerging markers lingered on Friday and the Hungarian forint continued in its weakening. In the afternoon the forint attacked central parity at 282.36 EUR/HUF (the pair reached 282.35). The NBH confined to comment from spokesman Gábor Missura that the bank has been closely watching financial markets developments. By the end of the session the forint recouped some of its looses nevertheless ended very weak at EUR/HUF 281.40 level. During the weekend the government had meeting to discuss public sector reforms. Prime Minister Gyurcsány said on Saturday that the government approved plans for public sector reforms and will set strict spending limits over next several years in order to make deficit cuts sustainable and to reach deficit of near 3% GDP in 2008. The reforms should cover healthcare sector (staring from July 31), education (details to be specified on Tuesday) and pension system (to be prepared by the end of this year). In addition social compensation system, including gas prices, should be announced on Wednesday.
Although Gyurcsány said that government is doing everything possible to stabilize the currency, we do not expect these promises will help. Investors are cautious to government promises and will wait for more details. Thus we assume the volatility of the forint to remain rather intense today, though we do not expect significant weakening below the central parity (EUR/HUF 282.36).
(CSOB - Investment research)