Hungary has reached agreement with the International Monetary Fund and the European Union on a broad economic rescue package, including substantial financing, steadying its battered currency on Monday.
The IMF said late on Sunday the deal was expected to be finalised in the next few days, and the package would help to bolster the Hungarian economy's near-term stability as it tries to stave off the impact of the global financial crisis.
Hungary needs the IMF help to restore investors' confidence in its currency and bonds, after its financial markets plunged in the past weeks as foreign investors dumped Hungarian assets on worries over the country's banking system and the financing of its large external debt.
The IMF did not release the size of the financing package but analysts said it should be over $10 billion based on the IMF's agreement in principle with the Ukraine to a $16.5 billion standby loan, also announced on Sunday.
With the highest interest rate in the European Union at 11.50 percent after a 300 basis point emergency rate hike last week, Hungary relies heavily on foreign capital inflows to finance its debt and deficits.
"The policies Hungary envisages justify an exceptional level of access to Fund resources," IMF Managing Director Dominique Strauss-Kahn said in a statement.
"Participants will include the IMF, the EU, and some individual European governments, together with regional and other multilateral institutions," he added.
A source close to the Hungarian government told Reuters the programme was "of convincing size and force".
Christoph Rosenberg, the IMF's Senior Regional Representative for Central Europe and the Baltics, told Reuters on Monday: "It's a really good policy package."
Analysts said the IMF package could give support to the forint in the short term and the deal would likely set conditions for the Hungarian government to tighten state spending further which would be a positive.
"I think the package will be fairly large, an amount exceeding $10 billion … and hopefully it will have conditions which would require structural changes to ensure a sustainable fiscal position, such as spending ceilings and restructuring of social spending," said Eszter Gargyan at Citigroup.
The forint traded at 273.00 versus the euro, up from its opening level of 275.00 at 0908 GMT, after plunging to new all-time lows of around 285.30 on Thursday in overseas trade as local markets were closed for holiday.
The stock market however went into a nosedive, and was down 10.3 percent at 0838 GMT after trading resumed following a four-day holiday weekend.
Separately, Daimler announced that it had signed a deal with Hungary's government to invest 800 million euros ($995.4 million) in a new plant in Hungary that will produce over 100,000 compact cars a year from 2012.
Daimler first announced the plans for the factory in June.
The new plant will come as a shot in the arm for Hungary's ailing economy, as economic growth is expected to suffer next year due to a slowdown in western Europe, and high interest rates only add to the economy's troubles.
