Forint Slides to Three-Week Low on Central Bank Forecast, Global Economy

The forint slid to a three-week low after Hungary’s central bank cut its economic forecast and said the country so far didn’t plan to return to international loan talks to cushion itself against a faltering global recovery.

The forint declined 0.6 percent to 284.04 per euro as of 4:30 p.m. in Budapest, the lowest intraday level since Aug. 2. It has lost 2.1 percent in the past five days, the steepest decline among more than 160 currencies tracked by Bloomberg. The Polish zloty lost less than 0.2 percent to 4.0135 per euro.

U.S. stocks dropped sending the Dow Jones Industrial Average below 10,000, and the 10-year Treasury yield fell below 2.5 percent for the first time since 2009 as a bigger-than- estimated slump in existing home sales fueled concern the economy may relapse into recession. The Hungarian central bank yesterday raised its inflation forecast and lowered its growth estimates for the next two years. Policy makers considered raising the key rate by a quarter-point and cutting it by the same amount before leaving borrowing costs at a record low, central bank President Andras Simor told reporters yesterday.

Lower growth forecasts and comments about the possible rate increases “fuelled a sense of emergency in the market,” Sebastien Barbe, Hong Kong-based head of emerging-market research at Credit Agricole Corporate and Investment Bank, wrote in a research note today. “The forint remains vulnerable in our view, as increased fears about a global double-dip may widen Hungary’s sovereign spreads,” the yield above U.S. Treasuries demanded by investors to account for perceived risk of default.

IMF

Simor also said he had no information that the Hungarian government planned to restart loan talks with the International Monetary Fund. The lender and European Union wound up talks without endorsing Prime Minister Viktor Orban’s plans to control the budget deficit. The country turned to the IMF for a 20- billion-euro ($25.3 billion) emergency bailout in 2008 to avert default after demand for its bonds dried up.

“The forint is likely to remain under pressure as the prospects for the country are far from bright,” emerging-market strategists at Societe Generale SA including Gaelle Blanchard in London wrote in a note. “There is no sign that the discussions with the IMF will resume any time soon, another negative factor for the forint.” The currency may weaken toward 290 per euro in the short term, she said.

The average yield at today’s offer of three-month Treasury bills rose to 5.38 percent from 5.28 percent a week ago as Hungary sold a planned 50 billion forint ($222 million) of debt, the debt management agency said on its Bloomberg page.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

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