East European Currencies: Hungarian Forint Drops Against Euro

By Ewa Krukowska

Aug. 27 (Bloomberg) -- Hungary's forint fell against the euro after Prime Minister Ferenc Gyurcsany told state radio he would resign if lawmakers don't approve his tax plan and next year's budget proposals. The Polish zloty declined.

The government wants to cut taxes by as much as 1.2 trillion forint ($7.4 billion) over the next four years to stimulate the weakest economic growth since 1993 last year, Gurcsany wrote in an article published in Nepszabadsag newspaper. The premier is reversing some of the tax increases he pushed through in 2006 as part of a plan to trim a record budget deficit and meet euro- adoption terms next year.

``Hungary has a minority government, which doesn't make it easy for pushing legislation through parliament,'' said Michal Dybula, central European economist at BNP Paribas SA in Warsaw. ``Gurcsany's statement today boosted political uncertainty.''

The forint fell as much as 0.4 percent to 236.83 per euro, and was at 236.10 by 2:55 p.m. in Budapest, from 235.84 yesterday.

The forint is the best emerging-markets performer in the past six months, rising almost 10 percent versus Europe's common currency as the central bank raised interest rates to the highest level in more than three years to curb inflation.

In other trading, the Polish zloty fell 0.2 percent to 3.3342 per euro as the central bank kept interest rates on hold at 6 percent, in line with analysts' expectations.

Polish Rates

The zloty is the worst-performing emerging-market currency in the region this month, falling 3.6 percent on rising risk aversion and as traders bet the central bank's rate-increase cycle is nearing an end amid slowing economic growth.

The central bank's Monetary Policy Council raised interest rates eight times in the past 16 months to quell inflation. Policy makers will hold a news briefing at 4 p.m. in Warsaw to comment on today's decision.

``We continue to expect the MPC to hike rates once again this year, probably in October, and it will probably be the last rise in the cycle,'' Piotr Kalisz, an economist at Citigroup Inc. in Warsaw, wrote in a client note.

The Czech koruna was little changed at 24.574 against the euro, from 24.572 yesterday, after a report by the Prague-based statistics office showed second-quarter real wages grew at the slowest pace in almost 10 years.

The average salary rose 1.1 percent when adjusted for 6.8 percent inflation, compared with revised growth of 2.6 percent in the first three months.

The Romanian leu gained 0.2 percent to 3.5451 per euro as CEZ AS, a Czech utility, said today it will invest 1.1 billion euros ($1.6 billion) in a 600-megawatt wind farm in Romania.

``The size of the investment is substantial given total net foreign direct investment reached 8.4 billion euro in the 12- month period ended in June,'' Bartosz Pawlowski, a strategist at TD Securities in London, wrote in a client note. ``Even though we don't expect the Romanian current account deficit to decline from around 14 percent of GDP last year, we think the situation on the financing side should continue to improve.''

The Slovak koruna was little changed at 30.309 per euro, as was the Turkish lira at 1.1902 against the dollar.

To contact the reporter on this story: Ewa Krukowska at ekrukowska@bloomberg.net