(Reuters) – The Hungarian forint steadied just off a one-year low on Monday after Budapest tried to calm fears of a Greek-style crisis, but reports of a new bank tax kept up pressure on shares in the country’s leading bank.
Hungarian bond yields were mixed with the yield on the three-year bond at a five-month high and long-end yields just off nine-month peaks. The forint edged up 0.3 percent from Friday’s local close to 287.01 per euro.
“The scare has dissipated, the panic is over. If the forint pares its losses some more and CDS prices normalize, investors will reconsider around the world how little basis this scare really had, the market will return to normalcy once again,” one fixed income trader said.
“(But) it will take much longer than the weakening took.”
Stocks were down 2.5 percent by 0937 GMT, paring earlier 5 percent losses but near a four-month low. The bourse suspended trade in shares of OTP Bank OTPB.BU for a second session in a row after its shares dropped more than 10 percent.
Hungary’s new, center-right Fidesz government rattled investors last week with comments suggesting the country was close to a Greek-style economic meltdown before trying to back off those comments over the weekend.
Most economists believe Hungary is far from becoming another Greece, noting its debt ratios are much lower.
Moody’s, however, said on Monday that comments by Hungarian officials last week were negative for Hungarian credit as they brought renewed attention to the country’s high debt. [ID:nLDE6560S6]. And Analysts said a fast market recovery was unlikely.
Economy Minister Gyorgy Matolcsy said on Monday that 1.0-1.5 percent of GDP in spending cuts were still needed but reiterated a government plan to cut taxes.
Hungary’s government said on Saturday it aimed to meet a deficit target of 3.8 percent of GDP agreed with international lenders, including the International Monetary Fund and EU.
State secretary Mihaly Varga said Hungary’s previous socialist governments had hidden the true fiscal shortfall and additional measures would be needed to reach the goal.
“The damage has already been done, but in case Fidesz sticks to the 3.8 percent figure and comes up with a sensible fiscal correction plan it will be able to ease some of the pressure on markets,” 4Cast analyst Gabor Ambrus said in a note.
WATCHING THE BANKS
Online news portal Index reported that one fundraising option being considered is the introduction of a special tax on banks, hitting Budapest shares.
Other shares in the region followed suit with Erste Group Bank (ERST.VI), one of the largest lenders in central Europe, dropping 1.5 percent. Prague stocks .PX lost 1.7 percent and Bucharest .BETI was down 2.3 percent.
Concerns about Hungary’s fiscal situation kept up pressure on central Europe’s reference currency the euro which hit its lowest level in more than four years.
The Polish zloty, however, edged up 0.4 percent and the Romanian leu was flat while the Czech crown added 0.5 percent after Fitch raised its outlook on its Czech rating on Friday.
Analysts were split on whether the forint could bounce back any time soon.
Hungary was forced to seek a $25 billion international aid package at the start of the financial crisis in October 2008. Commerzbank said it would be difficult to get financing without this aid after CDS prices jumped to above 400 bps.
“The risk of a renewed debt crisis has risen and as a result a recovery of the forint is unlikely,” its analysts said.
(Reporting by Reuters bureaus, writing by Jason Hovet; Editing by Toby Chopra)