As I noted last week, Hungary now seems to have lost the ‘anchor’ of a 2010 eurozone entry expectation. (see also this, and this ). As I am also indicating currency markets may well be driven at the moment by a combination of interest rate yield variations and expectations of future movements, and this may lead to increasing volatility.

Now, if we assume that between the relatively calm waters of ‘eurozone closing’ and the choppy waters of swimming alone in the open sea there must be a break point somewhere, it might not be unreasonable to ask whether Hungary may not be presently in danger of crossing that imaginary thin red line? With Hungarian interest rates currently at 6% clearly growth-needs indicate a measured pace of reductions (particularly with core inflation around 1.5%) , but CA deficits and government funding deficits in the 6% to 7% range anything substantial in the way of rate reductions looks problematic. This is why ‘slipping anchor’ on the euro-docking objective could turn out to be especially problematic in Hungary’s case, in particular given the high levels of non-forint-denominated borrowing, and the potential for secondary ‘balance sheet’ effects.