The Hungarian government ended the week making some new â€˜perceptionâ€™ concessions to the EU/IMF contingent. In its reviewed budget plan, the government said it will exclude the central bank from the transaction tax. Until now this had been the key sticking point in aid talks with the EU/IM. The HUF is rounding off the week on firmer footing on the news that a transaction tax on central bank operations will be removed from next yearâ€™s budget.
The government has revised its deficit forecast from +2.2% to +2.7% of GDP for 2013. Despite the market taking this as a positive development, analysts note that two issues suggest caution. First, despite the transaction tax having already been passed as a federal law, the governmentâ€™s announcements are only just â€œproposalsâ€.
The Hungarian government’s past form has been rather suspect; there is a risk that policy makers â€œmay choose to postpone or alter the planâ€. Second, this announcement should make further rate cuts even more likely. Perhaps the market should remain wary of near term HUF gains? Substantial appreciation by the remains well off and into the future (EURHUF 282.73).
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