Is the forint going up, against the Euro?
FT analysis: FT, Aug.7, 2012
Two weeks ago, the currency was trading at Ft290 to the euro. Since then it has climbed, opening at Ft275 on Tuesday morning before weakening to about Ft277.
“The HUF has priced out most risk premia recently, so there was really nothing left to allow it to strengthen,” said Peter Attard Montalto of Nomura Emerging Markets Research.
The idea of applying the financial transaction tax was only mooted a month ago and was a clear snub to the IMF and the European Union. So news of the U-turn is quite a climb-down. (The government refused to confirm the story to beyondbrics. But the fact that it was reported in local daily Maygar Nemzet, a staunchly pro-government paper bordering on a mouthpiece, suggests it is reliable.)
Montalto said that given the combined opposition of the IMF, the EU and the European Central Bank against applying the tax to the central bank, it was its timing, rather than the news in itself, that was unexpected.
“The surprise is that even as recently as the start of last week PM [Viktor] Orbán was stressing the importance of the MNB contributing like everyone else to [next year's] job creation policy – of which the MNB would have been contributing about half of the Ft250bn cost,” he noted.
Not that Montalto sees an IMF deal – which has already been almost nine months in the making so far – as anything like done and dusted.
“Our core view is for a stand-by arrangement deal by mid-October, and only if a degree of market pressure is still in place,” he says, warning that the financial transaction tax (FTT) still creates hurdles, even after the government’s retreat over the central bank.
There “may well be an over-reaction in that the FTT on the MNB was always going to be an additional hassle on top of an already fraught negotiating agenda, and the FTT itself on banks is still an issue for the IMF at least, and probably the European Commission as well,” he says.
Montatlo is not alone. His scepticism is echoed in a note from OTP, Hungary’s largest commercial bank. Indeed, the recent improvement in market sentiment regarding eurozone stability (and hence support for central European currencies) may, perversely, merely allow the Hungarian government to play for yet more time.
We still assume that without major market pressure, the government’s willingness to quickly make these decisions [to comply with EU-IMF demands] is quite uncertain. Therefore the probability of coming to an agreement in September-October has fallen significantly.
Hungary-IMF: still no deal, beyondbrics
Hungary’s financial transaction tax is latest snub to EU and IMF, beyondbrics
Hungary: Brussels-friendly central bank law paves way for EU/IMF talks,
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