Aug 15, 2016

Hungary contemplates lowering social taxes to aid economic growth

The Hungarian government would consider lowering social taxes paid by employers in an effort to boost competitiveness and aid growth

The Hungarian forint has hit a four-month high against the euro, it has been reported today.

The HUF led a mild firming of Central European currencies on Monday, hitting the high
against the euro after Mihaly Varga, minister of Economy, said Hungary was preparing a package of economic stimulus measures.

Varga said the Hungarian government would consider lowering social taxes paid by employers in an effort to boost competitiveness and aid growth, Reuters has reported.

The forint crossed a key psychological level at 310 against the euro and touched a four-month high at 309.55 against the euro.

It retreated to 309.59, but was still firmer by 0.1 percent from its last close. If the forint is able to stay firmer than 310, it could soon test 307, Equilor brokerage said in a note.

"It can firm slightly firmer, but I expect it to return to the weak side of 310 soon," one Budapest-based currency dealer told Reuters.

Dealers and analysts regard 310 as a threshold for the Hungarian central bank, and they have said the bank could intervene at least verbally if the forint stays firmer than that.

The Budapest Stock Exchange's main index rose by 0.3 percent. It approached 9-year highs, but stopped just shy of a psychological resistance level at 28,000 points.

Central European assets were already lifted on Friday by robust second-quarter economic growth figures from the region, fuelled by rising household incomes and consumption.

Hungary's 2.6 percent growth was the weakest among the figures reported in the region and Romania led the pack with 6 percent growth. The Czechs will report output data on Tuesday.

Even Hungary's pace is much faster than the euro zone's 1.6 percent average but a flight of labor into richer Western countries hinders growth in the region, and governments try to
fight that trend by cutting taxes and boosting wages.

Hungarian government bonds slightly extended last week's gains in the middle and at the long end of the yield curve.

The yield of 10-year bonds dropped 2 basis points to 2.77 percent, trading near record lows.

"If the government takes measures to tackle the labor shortage, that may be positive, but we do not see the details yet," one fixed income trader told Reuters.

Turnover in regional markets were low as markets in Croatia, Poland, Romania and Slovenia were closed due to national holidays.