Hungary must turn the markets around

2011. november 16. 09:28

So what is the government of Viktor Orban doing wrong, and how can it turn market sentiment in its favour?

2011. november 16. 09:28
Timothy Ash
Financial Times

„The government needs to quickly turn market sentiment, which is overwhelmingly negative at the moment. The central bank could try to prop up the forint by aggressively hiking policy rates or selling some of its $52bn foreign exchange reserves – which they indicated on Tuesday may happen. But given the fact that the crux of the problem at the moment seems to be a confidence issue in terms of government policy, perhaps an alternative solution is required.


I would argue that a new precautionary arrangement with the IMF would provide assurance for the market that the Orban administration’s more unorthodox policy refluxes can be bounded. Arguably, Hungary does not need significant new official financing, but could fund itself from the market if backstopping from the Fund was provided.

This could be the sentiment changer for the market. But for Hungary’s prime minister this would be a tough pill to swallow given that he has made much of breaking from the IMF and running an independent economy policy. However, needs must – and failure to act now could see the central bank forced to aggressively hike policy rates in defence of the forint, which would kill any recovery in its tracks.”
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