CEE MARKETS-Forint drifts lower for second day, leu takes in new government

By Reuters News

PRAGUE, Oct 21 (Reuters) - Hungary's forint retreated for a second day from a four-week high on Wednesday, with markets taking in the pro-EU government's new budget and drive for the euro along with central bank rates possibly staying on hold for some time.

  • The forint hit a high mark on Monday after Prime Minister Peter Magyar's government unveiled its 2027 budget, targeting a budget deficit of 4.9% of gross domestic product, a first step towards getting the fiscal gap below the European Union's 3% ceiling

  • Markets cheered the sharp reduction in the deficit -- from an expected gap of 7.5% of GDP this year -- but analysts say implementation will now become more important

  • On Tuesday, Hungary's central bank kept its base interest rate at 5.5% and said high energy prices, rising yields and economic uncertainty warranted cautious policy

  • With inflation likely to accelerate and the need to assess the government's fiscal plans -- as it seeks to put Hungary on a path to euro adoption -- many analysts see a prolonged pause in Hungarian interest rate cuts

  • "Further monetary easing would require a decline in energy prices, accompanied by a corresponding drop in bond yields in developed markets, as well as successful fiscal consolidation," Erste Group Bank said in a note, adding a pause may last until the second quarter of 2027

  • The forint eased a touch on Wednesday, down 0.2% at 365.10 to the euro at 0826 GMT, after a spike on Monday

  • Romania's leu , meanwhile, was steady after parliament confirmed independent MP Luca Niculescu as prime minister of a new government, ending nearly six months of political deadlock that put pressure on its investment-grade rating

  • Yields on the benchmark 10-year Romanian bond edged higher, though, tracking a wider rise in other central European markets

  • Elsewhere, the Polish zloty and the Czech crown each edged higher

  • The US dollar, whose recent strength has been a drag on appetite for emerging markets, drifted on Wednesday, with traders weighing developments in the conflict in the Middle East

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