Bloomberg News

Forint Extends Biggest Quarterly Loss in 2 Years on Budget Worry

September 30, 2011

Sept. 30 (Bloomberg) -- The forint weakened, extending the biggest quarterly slide in more than two years on concern the economy won’t strengthen as much as the government assumed in the 2012 budget presented to parliament today.

The Hungarian currency depreciated 0.3 percent to 293.7 per euro as of 4:52 p.m. in Budapest, extending its loss this quarter to 9.4 percent, the most since the three months through March 2009.

Hungary’s 2012 budget, which the government sent to parliament today, assumes growth in gross domestic product of 1.5 percent, underlying a plan to cut the deficit to 2.5 percent of GDP from 4.3 percent last year. While the budget “can handle” a lower growth rate than 1.5 percent, the Cabinet doesn’t expect the economy to slide into recession, Economy Minister Gyorgy Matolcsy told reporters today.

“There is a fear that the government planned the budget with excessive optimism,” Matyas Kovacs, an economist at Raiffeisen Bank International AG in Budapest, said in a telephone interview today. Raiffeisen expects Hungarian GDP to contract by 1 percent next year, he added.

The European Commission called on Hungary yesterday to abolish a tax on telecommunication operators, saying it is illegal under European Union rules as the revenue is used for the government’s central budget and not for meeting the specific costs of regulating the industry.

“The news on the budget side has not been reassuring in recent days,” Kovacs said. “Matolcsy’s press conference today had no positive impact on Hungarian assets, it was rather disappointing,” he added.

Hungary’s government bonds maturing in June 2022 slumped, lifting the yield 12 basis points, or 0.12 percentage point, to 8.29 percent.

--Editors: Linda Shen, Alex Nicholson

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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