Investor confidence is rattled as Hungary's forint sold off
Published 20/07/2010 | 05:00
HUNGARY'S currency, the forint, sold off yesterday after the government rebuffed calls for tougher austerity measures, bringing talks on further aid to a premature end and rattling investor confidence.
The International Monetary Fund (IMF) and European Union ended talks without endorsing Prime Minister Viktor Orban's plans to control the budget deficit.
The decision is a blow to Mr Orban's efforts to rebuild investor confidence after ruling party officials hit the currency when it raised the spectre of a Greece-like crisis last month.
The IMF will return to Hungary, in its fifth year of austerity measures, in September.
The talks were "interrupted as we have not been able to find enough common ground and there are too many unresolved issues", said Christoph Rosenberg, who led the IMF mission.
Analysts said the new centre-right government could be seeking to put off unpopular announcements about spending cuts until after municipal elections on October 3. But a surge in borrowing costs and weakness in the forint, which plunged over 3.3pc versus the euro by late yesterday, may well push the government to reach a deal sooner.
"The market is in no mood to overlook any fiscal laxity," said Timothy Ash, head of emerging market research at Royal Bank of Scotland.
Even though Hungary is not under immediate financing pressure, such delays would raise its financing costs, potentially forcing the Central Bank to raise interest rates and putting pressure on Hungary's ratings, analysts said.
Credit-rating agency Moody's said yesterday it was not about to change Hungary's Baa1 credit rating with a negative outlook. (Bloomberg)