MARKETS CEE-Forint, shares fall as investors await details of windfall tax in Hungary
Band Anita Komuves
BUDAPEST, May 26 (Reuters) – The Hungarian forint extended its losses and shares fell on Thursday as investors awaited details of new windfall taxes on banks and large private companies as the government aims to contain a soaring budget deficit.
Prime Minister Viktor Orban announced on Wednesday that banks and companies that make “additional profits” will have to contribute to the costs of army reinforcements and to fund caps on household energy bills.
the forint EURHUF= was down 1.71% at 394.90 per euro, while the Budapest stock index .BUX lost 4.76%.
Blue chip stocks tumble, with oil and gas group MOL MOLB.BU and OTPs OTPB.BU plunging more than 10% at the start of the session. As of 0831 GMT, shares recouped some losses but were still down sharply.
“The key question is how much money the government wants. If they want to fund the energy bill price cap entirely from these taxes, that’s a huge amount and the markets will be under even more pressure” , said a Budapest-based forex trader.
“If the amount is less than that and the government is also willing to tighten its belt, it might help balance the budget and investors might accept that.”
Details of the exceptional taxes, which will be applied in 2022 and 2023, were due to be announced at a press conference at 12:30 GMT.
Yields on long-term government bonds rose about 20 basis points amid low liquidity, two fixed-income traders said. The yield on the 10-year bond was around 7.05%.
“We are taking a break from the initial morning rally, but investors are watching the forint and if it breaks above 400 to the euro, yields could climb higher,” one trader said.
“If the central bank raised the deposit rate to one week this morning, that might have calmed the nerves a bit.”
The bank left the rate unchanged at 6.45% on Thursday. It uses the one-week deposit rate to solve short-term liquidity problems.
Elsewhere, the Polish zloty EURPLN= firmed 0.14% to 4.6025 against the common currency. The Czech crown EURCZK= was 0.12% higher and traded at 24.660 per euro.
The Czech central bank must keep interest rates above standard levels, support the government in reducing budget deficits and urge wage moderation, new governor Ales Michl said in an interview with Ekonom magazine.
At 10:31 a.m. CET
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(Additional reporting by Jason Hovet in Prague and Alan Charlish in Warsaw; Editing by Rashmi Aich)
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