The forint weakened for the first time in five days on speculation Hungary’s efforts to curb its budget deficit won’t be enough to alleviate the European Union’s concerns.
The currency slid after Economy Minister Mihaly Varga said the gap can remain below the EU’s prescribed limit of 3 percent of gross domestic product without additional tightening. Hungary will probably exit the EU’s so-called excessive deficit procedure for the first time since joining the bloc in 2004 as the deficit target is expected to be met for a third year in a row, Varga said.
“The forint had a slight negative reaction” to Varga’s comments, Andrej Taraczky, Budapest-based head of currency trading at Buda-Cash Brokerhaz Zrt., said by phone. “Most likely the government will need to make further policy adjustments sooner or later.”
The forint depreciated 0.3 percent to 295.38 per euro by 12:27 p.m. in Budapest. Yields on the government’s benchmark 10- year bonds were little changed at 5.61 percent.
Hungary will collect less revenue than expected from a tax on financial transactions and will use some of its budget reserves to maintain the deficit at 2.7 percent of GDP, Varga said.
The forint also weakened as data showed German investor confidence declined more than economists forecast in April, Taraczky said.
The European Commission has criticized Hungary’s measures to cut the budget shortfall, including extraordinary taxes on selected industries, as unsustainable. The commission has projected a 3.4 percent of GDP deficit for this year and next.
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