The forint strengthened the most in two months and the cost of insuring Hungary’s debt fell to a 14-month low after the government scrapped a tax plan that was an obstacle to obtaining aid from the International Monetary Fund.
Hungary’s currency appreciated 0.9 percent to 282.19 per euro by 3:03 p.m. in Budapest, the biggest jump since Aug. 3. The cost of protecting the country’s bonds against non-payment with credit-default swaps tumbled 17 basis points to 358, the least since August 2011, data compiled by Bloomberg show.
The government will impose a higher levy on cash withdrawals, raise more than previously planned by taxing transactions at the state treasury and delay a pay increase for teachers to keep the budget deficit within 3 percent of gross domestic product, Economy Minister Gyorgy Matolcsy said at a press conference in Budapest today. The measures will help it forgo a tax on central bank deals which threatened to further delay IMF aid requested by Hungary 11 months ago.
“The market is pleased with the government measures,” Karoly Bamli, a Budapest-based trader at Commerzbank AG, wrote by e-mail today. “It regards the steps as realistic for now and it sees the item related to the central bank as a move towards an agreement” with the IMF, Bamli said.
The yield on the government’s benchmark 10-year bond fell 17 basis points, or 0.17 percentage point, to 7.24 percent, the lowest since July, according to data compiled by Bloomberg.
The IMF urged Hungary to implement “more balanced” policies that improve the growth outlook and hold off on additional austerity measures on top of the government’s planned 2013 budget cuts, Iryna Ivaschenko, the Washington-based lender’s representative in Budapest, said on Oct. 3. The fund hasn’t set a date for the resumption of talks with Hungary, Gerry Rice, the lender’s spokesman said in Washington yesterday.
The budget steps announced today “may reduce risks and increase the chances for a potential IMF agreement,” Zoltan Arokszallasi, a Budapest-based economist at Erste Group Bank AG, said by telephone today. “We still see a lot of uncertainties” as the measures may not be enough to keep the deficit within 3 percent of GDP or reach a quick deal with the IMF, he said.
The cost of insuring against default on Hungary’s debt with credit-default swaps fell 13 basis points to 362, the lowest in two months and more than 50 percent below January’s peak.
Emerging-market assets extended gains today after a report showed U.S. unemployment unexpectedly fell in September, boosting bets on a recovery in the global economy.