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Policy continuity key to HUF performance, says City

Policy continuity is the key factor determining further HUF performance, London-based emerging markets analysts said.

In an emerging markets FX update, Goldman Sachs said that the forint “arguably remains the most interesting currency in CEEMEA”.

Hungary is still overburdened by balance sheet problems, particularly at the corporate and household sector levels. But it has also undergone massive fiscal consolidation, which has helped stabilize the public debt stock. This strong fiscal consolidation, if sustained and further supported by structural reforms, could eventually tip the Hungarian economy into a “positive equilibrium” of falling risk premium, lower yields and more sustainable economic growth. So the key to HUF performance appears to be policy continuity, GS said.

It said its analysts continue to believe that, in all likelihood, the Fidesz government will commit to a strong IMF-backed stabilization program, so “there is good reason to be constructive on the HUF in the medium run”.

In the meantime, as negotiations with international lenders take place, HUF volatility may pick up in response to domestic political noise, as amply demonstrated by the recent comments of senior government representatives, drawing explicit analogies between Greece and Hungary amid an intensifying fiscal crisis in the Eurozone, Goldman Sachs said. (MTI – Econews)