The Hungarian forint headed for its first weekly drop in more than a month on concern a planned tax on central bank transactions will cause further delays in obtaining an international bailout.
The forint depreciated 0.4 percent to 287.6 per euro by 2:39 p.m. in Budapest, bringing its decline this week to 0.6 percent. Hungary’s benchmark forint-denominated bonds maturing in 2022 weakened the first time in four days, lifting yields 14 basis points to 7.955 percent.
Hungarian legislators today approved amendments to a disputed central bank law which has blocked negotiations on an International Monetary Fund loan for more than seven months. A new tax on financial transactions proposed by the government may violate European Union rules, the Magyar Nemzeti Bank said yesterday. A joint IMF-EU mission will visit Hungary on July 17, the EU said today.
“The transaction tax unnerves investors who are afraid the IMF may not allow this and the much-awaited aid deal may be delayed further,” Andras Sovany, a Budapest-based fixed income trader at ING Groep NV, wrote in an e-mailed response to questions from Bloomberg today.
The cost of insuring against default on Hungary’s debt with credit-default swaps rose nine basis points to 508 basis points, according to data compiled by Bloomberg.
“The risk still stands that they could halt negotiations if the European Central Bank/EU do not agree with the tax” on transactions, Thu Lan Nguyen, a Frankfurt-based strategist at Commerzbank AG, wrote in an e-mailed response to questions from Bloomberg after the EU announced the start of talks.
Hungary’s industrial output rose a workday-adjusted 1.9 percent in May from a year earlier after a 3.1 percent fall in April, the Budapest-based statistics office said today, citing preliminary data. Output fell 0.7 percent in the first five months of 2012, pushing Hungary toward its second recession in four years.
“Hungary is stuck in a no-growth rut and we expect the forint to underperform its regional peers going forward,” Christian Lawrence, a London-based currency strategist at Rabobank International, wrote in e-mailed comments.
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