IMF ends Hungary visit, urges budget steps

The International Monetary Fund's delegation will return to Washington after talks with Hungarian authorities as several issues remain open and Hungary needs to work out steps to meet its budget targets, the IMF said on Saturday.

Talks were expected to be completed early next week.

The IMF said Hungary will need to take additional measures to meet its deficit targets this year and in 2011.

ANALYST COMMENTS:

ZSOLT KONDRAT, MKB BANK:

"One would definitely expect a weakening forint on Monday. A 10-forint weakening (versus the euro) is quite plausible, and nobody knows how nervous the market's reaction might be.

"Nobody expected an interest rate cut from the National Bank of Hungary on Monday, but if the forint shoots up to 300 against the euro (from a Friday close of 281.95) in one breath, then a rate hike might even be possible. If the central bank sees a dynamic weakening and sees no end to it, then they will have to react.

"Markets may have priced the chance for a breakdown of talks into Hungarian assets, which have underperformed of late."

GYORGY BARCZA, K&H BANK:

"There was a similar situation in Romania. The IMF left, then they returned in a few months. This is bad news, but not the end of the world. The market will price it accordingly.

"The key is what deficit goals the government will communicate now. The 3.8 percent deficit target this year is a must regardless of the IMF opinion, since that target is a matter of contract. The bigger question is the target for next year.

"I honestly think the IMF is not without fault here either. The budget is in a much worse shape than it was communicated (by the previous Socialist government). That there was no serious fiscal control in the first half of the year is partly the IMF's responsibility, and the government has some grounds to request more room to loosen the budget.

"It is another matter that Hungary's fiscal past is so tainted, it being under double excessive deficit procedures by the European Union, that the extra strictness is also justified.

"Hungary has been able to issue foreign currency bonds this year, so it could probably finance itself form the market entirely, but that would probably lead to higher premiums and necessitate an even better primary budget balance."