The Hungarian forint remained strong throughout the whole session on Tuesday. It reached 6-weeks high at 271.35 against the euro but ended slightly weaker at 272.50 EUR/HUF. The currency was supported by expected 50 bps hike of Slovak central bank while the Finance Ministry proposal to include Motorway costs in 2006-08 budgets, which would imply increase of deficits by 0.6%, 0.9% and 0.1% respectively, had only moderate effect on the forint. Since shifting of motorway costs is basically accounting operation, it is not surprising that the forint was almost unaffected by this information. Investors are rather focusing on fiscal adjustments and their real impact on budget deficit, which was not this case.
On the contrary this information is in some way positive as it can be seen as move to more transparent policy. Today, there won’t be any significant external nor domestic events, thus we expect the forint might remain at current levels around 272-273 EUR/HUF. We expect that yesterday’s statement of Finance Minister Janos Veres in late in the afternoon that Hungary had no firm euro adoption date should be largely market neutral, because the postponement of earlier target date 2010 has already been widely expected.
(CSOB - Investment research)