The forint continued to firm despite the fact that the current account deficit in the first quarter was higher than expected at EUR1.5bn, according to figures released by the Hungarian National Bank on Thursday. The budget deficit is also high, even ahead of tax reforms introduced this week that will remove a further HUF200m from the budget in 2006 alone. Analysts believe that the tax package will bring further macroeconomifc uncertainty and may even cause Hungary’s entry into the Eurozone – planned for 2010 – to slip further.

Yet foreign investors still flood onto the Hungarian market. By the end of March, the total value of the state securities in foreign hands had reached HUF2668bn, compared to HUF2350bn a year ago. And analysts think that the influx has quickened since the end of May. Depressed returns in the United States and the Eurozone are driving foreign investors towards the East European markets, which still show significant interest rate differentials.