Gloom hits Hungarian government officials after the Hungarian forint’s foreign exchange rate has dropped to a new record low against a weaker euro as the country scaled back a debt sale and continued talks over a bailout.
The forint tumbled to 323.40 against the euro, the lowest since the 17 nation currency was founded in 1999 as thousands of Hungarians have taken to the streets in protest at the country’s new constitution.
Hungary has been seeking a standby credit line of 15-20bn euros ($19.5bn, £12.6bn) from the IMF and EU as it runs into trouble issuing new debt.
But both have both cast doubts over aid because of the new laws passed by the ruling Fidesz party, which critics say undermine the independence of its central bank.
The new law allows the government to appoint more deputy governors, and Hungary’s central bank governor, Andras Simor, has said the bill amounts to a takeover of the central bank.
The government wants to keep interest rates low to boost growth, but Hungary’s central bank increased rates for the the second month in a row in December, to 7% from 6.5%.
Demonstrators say that other changes to the constitution harm democracy and remove the checks and balances set up in 1989 when communism fell.
The EU and US have asked for the law to be withdrawn.
Tamas Fellegi, who is in charge of negotiations with the IMF and EU, said on Thursday that the government wanted to strike a deal “as soon as possible”.
“We are ready to negotiate without preconditions, and we are ready to discuss everything at the negotiating table,” he said.
The state debt agency cut its sale of 12-month treasury bills by 10bn forints from the planned 45bn forints after there were fewer bids, and the yield surged to 9.96% from 7.91% at the last auction.
Ratings agency Standard & Poor’s downgraded Hungary’s debt to junk status in December, partly due to the changes to the constitution.
Hungary was last given a 20bn euro standby loan by the IMF in 2008 to prevent it having to default on its debts.