BUDAPEST: The forint led a mild firming of Central European currencies on Monday, hitting a 4-month high against the euro after Economy Minister Mihaly Varga said Hungary was preparing a package of economic stimulus measures. Varga said the government would consider lowering social taxes paid by employers in an effort to boost competitiveness and aid growth. The forint crossed a key psychological level at 310 against the euro and touched a 4-month high at 309.55 against the euro. It retreated to 309.59 by 0841 GMT, but was still firmer by 0.1 percent from its last close.
If the forint is able to stay firmer than 310, it could soon test 307, Equilor brokerage said in a note. “It can firm slightly firmer, but I expect it to return to the weak side of 310 soon,” one Budapest-based currency dealer said.
Dealers and analysts regard 310 as a threshold for the Hungarian central bank, and they have said the bank could intervene at least verbally if the forint stays firmer than that.
The Budapest Stock Exchange’s main index rose by 0.3 percent. It approached 9-year highs, but stopped just shy of a psychological resistance level at 28,000 points. Central European assets were already lifted on Friday by robust second-quarter economic growth figures from the region, fuelled by rising household incomes and consumption.
Hungary’s 2.6 percent growth was the weakest among the figures reported in the region and Romania led the pack with 6 percent growth. The Czechs will report output data on Tuesday. Even Hungary’s pace is much faster than the euro zone’s 1.6 percent average but a flight of labour into richer Western countries hinders growth in the region, and governments try to fight that trend by cutting taxes and boosting wages.
Hungarian government bonds slightly extended last week’s gains in the middle and at the long end of the yield curve. The yield of 10-year bonds dropped 2 basis points to 2.77 percent, trading near record lows. “If the government takes measures to tackle the labour shortage, that may be positive, but we do not see the details yet,” one fixed income trader said.
Turnover in regional markets were low as markets in Croatia, Poland, Romania and Slovenia were closed due to national holidays. The zloty firmed slightly in international trade to 4.269 against the euro. Poland has obtained approval from the People’s Bank of China for an offering of 3-year Panda bonds, the Reuters financial news service IFR said on Monday. Belgrade’s stock index continued to retreat from and 8-month high hit last week, and shed half a percent.
