The Hungarian forint hovered throughout the whole session in a tight range around 273.30 EUR/HUF. The currency eased slightly in the morning but the successful auction of 3-year and 15-year bonds helped the forint to rebound.
It is worth mentioning that International Monetary Fund published yesterday its "World Economic Outlook”. The IMF unsurprisingly warned that that Hungary needs the most urgent fiscal consolidation of any emerging markets in Europe and governmental plans to deal with public finance mainly through increased taxes could hurt growth potential. According to the IMF estimates GDP growth will slow from 4.5% in 2006 to 3.5% in 2007, and inflation will pick up from 3.6% to 5.8%. Although the IMF forecast concerning GDP growth and inflation was more optimistic that our own as well as forecast of Hungary’s Finance Ministry, on contrary the IMF was discouraging concerning current account, which IMF believes would not improve much due to government overspending. According to IMF, current account should reach in 2006 and 2007 9.1% and 8.0% of GDP respectively.
Today, the domestic economic calendar is virtually blank, since final industrial output data comes as market neutral. Thus, the market will watch US CPI. If it appears to be higher than expected the impact on the region would be negative. We believe that due to unfavorable macroeconomic fundamentals the forint would be hurt the most in Central Europe.
(CSOB - Investment research)