HUNGARY:HUNGARY'S CENTRAL bank took help from the European Central Bank and acted to bolster its banking sector yesterday to stave off the effects of the financial crisis and avoid becoming the next Iceland.
The EU newcomer's prime minister also appeared to suggest that Hungary could join the euro zone waiting room before 2010 elections, a move that some analysts say could protect the country from market turbulence.
Investors have dumped Hungarian assets over fears its reliance on external financing and the high level of loans granted in foreign currency could spark a meltdown if foreign investors turn off the flow of euro, Swiss francs and dollars.
The government and central bank have scrambled to reassure investors and jump-start frozen markets in government bond and foreign currency swaps - somewhat obscure instruments that are crucial to Hungary's financial health. After a government request this week for potential aid from the International Monetary Fund, Hungary's central bank (MNB) signed a €5 billion deal with the ECB allowing it to borrow if necessary to keep euro flowing.
The central bank's moves helped restore some confidence, although the forint only recovered 1.8 per cent of the previous day's 7 per cent dive. "This is a first step in the right direction, but it doesn't mean the problem has been solved," said Gyorgy Barcza, economist at KBC's Hungarian unit. "The problem is not market liquidity, but investor confidence." - (Reuters)
