The Hungarian forint’s foreign exchange rate took another battering on the currency markets today and skidded to €319.70, beating the previous historic low of €317.59 set in March 2009 when the EU member, which is not part of the eurozone, was reeling from the global financial crisis.
The slide was due to concerns that Hungary’s new constitution, which on Monday drew tens of thousands of demonstrators onto the streets, will torpedo efforts to secure much-needed international financial help, traders said.
Analysts at CIB bank, part of Italy’s Intesa Sanpaolo, said it was also due to press reports, which they said had been denied, that the government planned to plunder the foreign currency reserves of the central bank.
Amid growing investor unease about Orban’s unorthodox economic policies and worries about slowing growth, the forint already slumped by around 20 percent in the second half of 2011, ending the year at 315.35 euros.
Coupled with problems auctioning sovereign bonds, this forced Mr Orban in November to approach the International Monetary Fund and the European Union about a possible credit line of €15bn-€20bn.
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In December Standard & Poor’s joined Moody’s in cutting its Hungarian debt rating to “junk”. Yields on five and 10-year bonds have soared in recent months to more than 10pc.
“Right now, financing our debt is possible. But such rates are unsustainable,” said renowned Hungarian economist and former finance minister Laszlo Bekesi, calling an accord with the IMF “imperative.”
“Without a deal with the IMF, we will have to offer even higher yields, nobody will want them (the bonds) because no one will believe we can pay them back.”
But IMF and EU officials broke off initial talks in December, sharply criticising reforms of the central bank under the new constitution which they say risk seriously undermining the bank’s independence in setting interest rates.
Among the changes that have alarmed the European Central Bank, the head of the central bank has lost the right to nominate his deputies, with this power now in the hands of Mr Orban’s government.
His government, which attacked the central bank’s recent interest rate rises, says the revamp is a response to past failures. Central bank chief Andras Simor has described the reforms as a “total takeover” by the government.
“Back in 2008/09, the IMF offered support to all those who needed it, including Hungary, Romania and Ukraine,” said Charles Robertson, chief economist at Renaissance Capital in London.
“But in the past year, the IMF has been tougher on Ukraine and no deal has yet been made there. This suggests a tougher stance is also likely towards Hungary.”
Analysts at Capital Economics said that the news from Hungary was going “from bad to worse” and that the chances of reaching an accord with the IMF “appear to be slipping.”