"Speculation arose on the markets amidst jittery sentiment before the government spokesman's press conference today that Finance Minister János Veres and Prime Minister Ferenc Gyurcsány will announce their resignation.The forint reacted nervously to the rumour, weakening to above 263 to the euro, which marks a low that it has not been at for more than 18 months.
At the press conference, Veres spoke about considerable achievements in the government's fiscal adjustment programme, but noted that things were left to be done in all five reform areas.
Responding a question by a journalist, government spokesman Dávid Daróczi said speculation about the resignations was “absurd".
The speculation could have been fuelled by a press report on Tuesday that the personal relation between Veres and Tibor Draskovics, minister without portfolio charge of public administration, has turned tense. The spokesman has reiterated a previous statement issued late on Tuesday that this speculation is also groundless.
Last month, a local paper said that Draskovics, government commissioner for state reform, would bow out of office because the cabinet was supporting the tax reform ideas of Finance Veres istead of his.
While the HUF was quoted below 261 against the euro before the start of the press conference at 15:00 CET, it eased to 262.70/263.00 to the news that Gyurcsány and/or Veres will resign.
The weakening of the forint that really picked up since late Tuesday was triggered by more than local events. Remarks by Fitch director Ed Parker yesterday and the weak macroeconomic fundamentals could also be blamed for the fact that “the forint took the largest blow" in the whole region, a currency dealer of a large local bank told Portfolio.hu.
“[...] if the dour sentiment persists, the HUF could ease even to around 265-268," he said.
This could have an impact on the central bank's monetary policy, as well, but unlike a London-based analyst, he still sees a greater chance for the MPC to leave the base rate on hold at 7.50% than to raise it. He said his stance would change of forint sales greatly accelerated.
The currency dealer noted that the market's focus on the 9 March referendum and its potential impact on the FX and FI markets are negligible, as both arenas are prone to be affected mostly by global events."
Source: Portfolio Online Financial Journal
07.02.2008