The Hungarian forint was on Monday changeable when traded in a range from 279.45 EUR/HUF up to 281.60 EUR/HUF. The forint’s opening values were stronger than late on Friday as Sunday’s 225 basis point Turkish rate hike helped emerging markets to recover. But soon the forint retreated and ended at the EUR/HUF 280 level.
It is worth adding that today the Education Minister should announce details of education reforms, and as well the government should propose a new plan for value added tax hike. Prime Minister Gyurcsány said on weekend that it was mistake to cut top VAT rate form 25% to 20% at the beginning of the year and will discuss today at meeting with employers and trade unions alternative proposal to raise middle and top VAT rates by 3% to 18% and 23% instead of raising only middle VAT rate from 15% to 20%.
However we do not think these events might have any significant impact on the forint as new proposal of VAT hike should generate the same amount of state revenue as the original plan and education reforms will not alone generate sufficient savings.
Today we expect the uncertainty will persist. Nevertheless we believe that market speculations of rate hike will protect the forint from substantial weakening.
(CSOB - Investment research)