Hungarian Forint Drops as EU May Restrict Hungary Funds on Deficit Breach
Jan. 11 (Bloomberg) -- Lupin Rahman, a fund manager at Pacific Investment Management Co., talks about the outlook for emerging-market economies and investment strategy. She speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Hungary’s government bonds dropped for the first time in a week and the forint weakened after the European Commission said the country faces suspension of some its funding and possible sanctions for breaching budget deficit targets and for laws that may contravene European Union rules.
The currency depreciated as much as 0.5 percent against the euro before paring its loss to 0.2 percent at 312.02 by 4:29 p.m. in Budapest. The yield on the government’s 10-year notes rose 3 basis points to 9.591 percent from 9.558 percent yesterday, the lowest since Dec. 27.
Hungary may face suspension of development aid known as cohesion funds if it fails to correct its budget deficit, the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn said today in Brussels. The Commission is also “preoccupied” that laws enacted by Prime Minister Viktor Orban’s government breached the bloc’s rules. The EU and the International Monetary Fund halted bailout talks last year because new regulation may compromise central bank independence.
“The EU wants to make it clear before the main aid talks start that it has serious conditions for assistance,” Sandor Jobbagy, a Budapest-based economist at Intesa Sanpaolo SpA’s CIB Bank unit, said in a telephone interview. “If the EU actually decides to withhold funds that will have more of a market impact.”
Hungary’s currency rebounded from its all-time low of 324.24 on Jan. 5 while yields retreated from 2 1/2 year highs this week after Orban sought to resolve the dispute and sent an official to start preparatory aid talks in Washington.
“The government has expressed close to 100 percent flexibility verbally, now the market is waiting for the concrete steps,” Jobbagy said.
‘Robust Stance’
The country is ready to discuss the EC’s recommendations regarding the excessive budget deficit procedure and wants to reduce the gap to below the EU’s 3 percent limit of gross domestic product limit in 2012 and 2013, the Economy Ministry said in an e-mail today.
The “fairly robust stance” suggests Hungary’s negotiation for a new assistance program “could still be tough,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, wrote in an e-mailed note.
The euro weakened for the first time in three days against the dollar on speculation France’s credit rating may be cut.
To contact the editor responsible for this story: Andras Gergely at agergely@bloomberg.net
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