Hungary unveils four-year euro adoption plan, bonds rally
Hungary's government has laid out a four-year roadmap to adopt the euro, pairing fiscal consolidation with growth targets. Societe Generale notes the plan has fueled a rally in Hungarian government bonds (HUFGB), with the 10-year yield outperforming emerging-market peers.
The roadmap sets GDP growth at 2.4% for next year, a figure Societe Generale describes as conservative and close to the 10-year average. From 2030, the government targets growth above 3%, a more ambitious goal set against continued fiscal tightening.
The budget deficit is projected to narrow to 2.8% of GDP by 2030. Societe Generale notes Budapest is counting partly on €16.4 billion in EU funds and on interest savings as Hungarian borrowing costs converge toward euro-area levels.
A tax package tied to the plan is due to go before parliament. It would raise levies on several sectors, lift the corporate tax rate for large companies, and introduce a new wealth tax.
Separately, the European Commission approved a €5.4 billion SAFE defence loan programme for Hungary. The 10-year HUFGB yield fell 12 basis points to 5.44%, outperforming other emerging-market bonds the previous day, according to Societe Generale.
This is relevant for forex and bond markets: progress on euro adoption and fiscal consolidation can support Hungarian bond prices and the forint by lowering risk premia, while the pace of deficit reduction and the new taxes will shape investor confidence in Hungarian assets going forward.
Source: FXStreet