The Hungarian forint yesterday followed the zloty to stronger values

The Hungarian forint yesterday followed the zloty to stronger values, but did not break through the technical barrier at 270 EUR/HUF and soon returned back to weaker values. One reason behind the fact that the forint corrected back was the statement of European Monetary Affairs Commissioner Joaquin Almunia who said that if Hungary does not implement its fiscal austerity measure rigorously Hungary risks losing cohesion funds. The foreign trade statistics showed a narrowing of the deficit, but broadly in line with market expectations and therefore couldn’t move the market.

It is worth mentioning that Eurogroup (European Union finance ministers) approved Hungary’s fiscal austerity programme and thus gave Hungary more time to cut its budget deficit until the end of 2009. Nevertheless ministers stressed that reforms must be implemented strictly and urged Hungary to start swiftly also with structural reforms of public administration, healthcare and pension and education systems. Concerning the education system the first step was done already yesterday, when parliament passed in its final reading the legislation on introducing highereducation tuition fees.

EUR/HUF testing key support level Today, the most important domestic event will be release of September’s consumer inflation. We believe that due to VAT as well as excise tax on alcohol and cigarettes increase CPI rose to 4.9% y/y, which is slightly below market consensus. However the market already priced in acceleration of inflation thus it should have only minor impact. The forint thus will follow the region. With respect to the fact that the forint yesterday afternoon broke offshore through technical barrier 270 EUR/HUF it might strengthen further. On the other hand the Hungarian currency recently firmed already sharply, thus we tend to believe that the forint rather correct back above 270 EUR/HUF level, but the technical picture warrants our full attention and a confirmation of the break would be highly relevant.

(CSOB - Investment research)