„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.