Hungary cancels bond swap amidst currency turmoil

BUDAPEST, Hungary (AP) — Hungary’s woes deepened Wednesday as the government’s controversial economic policies and uncertainty over whether it can agree on a deal with the IMF drove its currency to a new low against the euro.

Hungary’s borrowing costs also rose to levels not seen since 2009, forcing the government to cancel a planned bond swap auction Wednesday.

Hungary’s economy has been staggering since 2008, when the global credit crunch prompted the Central European nation of 10 million to accept an International Monetary Fund bailout of euro20 billion ($26 billion). Over the past months, investors have shied away from buying Hungarian debt, and the country’s credit rating was cut to junk status by two U.S. ratings agencies late last year. Unemployment is 10.8 percent and the country could be heading toward a recession.

Hungary is seeking a financial “safety net” from the IMF and the European Union, but preliminary talks ended early in December after the government pushed ahead with new laws seen as infringing on the independence of the National Bank of Hungary. Talks with the IMF are due to restart next week in Washington.

On Wednesday, the euro rose to a record 321.40 forints, surpassing a peak above 317 reached only two months ago, while interest rates for Hungary’s 10-year bonds was 10.6 percent, compared with 8.4 percent in early December.

“With problems likely to deepen in the eurozone and no sign that Hungary’s policy credibility is improving, Hungarian assets look set to be in for a bumpy ride,” said William Jackson, an emerging markets economist at Capital Economics in London.