Forint Drops 4th Week on Orban Rejection of IMF Bailout Criteria

The forint headed for a fourth week of declines after Hungarian Prime Minister Viktor Orban rejected European Union and International Monetary Fund conditions for aid and the country’s recession deepened.

The currency appreciated 0.1 percent to 286.62 per euro by 2:49 p.m. in Budapest, paring its losses this week to 0.8 percent. The yield on the government’s benchmark 10-year bonds fell eight basis points to 7.469 percent after jumping 13 basis points, or 0.13 percentage point, yesterday.

Hungary needs and will obtain a credit line from the IMF yet the government won’t accept the conditions currently demanded for the aid, Prime Minister Viktor Orban said in an interview on MR1 radio today. The country’s gross domestic product slumped 1.3 percent in the second quarter from a year earlier, compared with a 1.2 percent preliminary estimate, the statistics office in Budapest said today.

“Sooner or later the aid talks will continue, Orban is only playing, it isn’t in his interest to kill it off,” Levente Blaho and Adam Keszeg, analysts at Raiffeisen Bank International AG, wrote in a research report today. “At the same time, it will probably take weeks to resume talks, and in the meantime Hungarian markets will remain fragile.”

Hungary should move away from “ad hoc” taxes to plug budget holes and should create a more “business friendly” environment to boost growth and make budget financing sustainable, the IMF said in a July 26 statement after holding what it called a week of “constructive” talks in Budapest.

Aid Agreement

“Discussions are at a preliminary stage,” European Commission spokesman Olivier Bailly told reporters in Brussels today. “Both the commission and the IMF are waiting for feedback from the Hungarian authorities on the joint document that was provided at the end of July.”

The government “needs to do everything” to reach an aid agreement, Antal Rogan, the parliamentary leader of Orban’s Fidesz party, said today after a three-day party meeting in Sarvar, western Hungary, in comments carried by HirTV.

The ruling party backs “targeted” spending cuts requested by the international lenders, such as for the reduction of state bureaucracy, while rejecting the trimming of pensions or scrapping plans for payroll tax cuts, Rogan said.

Emerging-market stocks headed for the largest two-day gain in more than a month after ECB President Mario Draghi said policy makers agreed to an unlimited and sterilized bond-purchase program, easing concern the region’s debt crisis will curb exports from developing nations.

“The global yield hunt heated up again with the ECB announcing a new bond-purchase program,” Raiffeisen’s Keszeg wrote in a separate research note today.

Hungary’s cost to insure debt with credit-default swaps fell 16 basis points to 385, the lowest since August 2011.

“The government will string out talks as long as possible with the view in the back of their minds that they may be able to get away without one once the eurozone crisis gets ’solved,’” Peter Attard Montalto, a London-based strategist at Nomura International Plc, wrote in an e-mailed report today.

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