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Forint Drops Most in Week as Hungary Yields Jump: Budapest Mover

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June 18 (Bloomberg) -- The forint fell the most in a week on speculation Hungary’s planned tax increases will damp economic growth and on investor concern Federal Reserve policy makers will pare back monetary stimulus.

Hungary’s currency weakened 1.1 percent to 293.92 per euro by 5:10 p.m. in Budapest, the biggest decline since June 10. The forint pared its advance in the second quarter to 3.5 percent, still the best performance among more than 20 emerging-market currencies tracked by Bloomberg. Yields on the government’s 10-year bonds rose 26 basis points, or 0.26 percentage point, to 5.85 percent. Stocks fell for a second day.

The government plans to raise charges on telephone calls, mining and financial transactions, Economy Minister Mihaly Varga said yesterday. The measures contributed to the forint’s weakness by threatening to weaken economic growth, traders at Commerzbank AG and Equilor Befektetesi Zrt said. The Federal Open Market Committee starts a two-day policy meeting today, a month after Chairman Ben S. Bernanke said stimulus efforts could be scaled back if the employment outlook shows sustained improvement.

“The package announced by Varga had a relatively smaller impact on the currency, stocks were hit more,” Pal Saaghy, a Budapest-based trader at Equilor, said by phone today. “Currency volatility is mainly caused by the uncertainty over the fate of the Fed’s quantitative easing.”

The benchmark BUX stock index slid 0.5 percent by the close, extending its two-day loss to 1.8 percent.

Transaction Taxes

Besides the higher tax on transactions, banks will also be required to make a payment equivalent to 7 percent of loans that the central government transferred to its books from debt-laden municipalities in December, according to a draft bill posted on Parliament’s website yesterday.

The charge won’t constitute “selective default” for the government because the debt assumption and the payment obligation will be separate both in timing and in legal terms, the Economy Ministry said by e-mail today.

The tax increases and the charge on the municipal debt are “a disappointment” as they add to Prime Minister Viktor Orban’s track record for “unorthodox” policies, Peter Attard Montalto, a London-based strategist at Nomura International Plc, wrote in an e-mailed report today.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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