Hungarian Forint Depreciates as Swiss Franc's Gain Raises Mortgage Concern

The forint erased gains to weaken against the euro as the Swiss franc, in which most of Hungary’s mortgage loans are denominated, strengthened for the second time in two trading days.

The forint weakened 0.2 percent to 284.95 per euro as of 5:02 p.m. in Budapest, the biggest drop among more than 20 emerging-market currencies tracked by Bloomberg. The Hungarian currency retreated 0.9 percent to 218.378 against the Swiss franc.

The forint last week dropped to the weakest level in more than a month after the Swiss franc’s advance to an all-time high fueled concern foreign-currency loan defaults may increase. About 5.4 trillion forint ($24.1 billion), or two-thirds of Hungary’s overall household credit, is denominated in foreign currencies. Of that, 82 percent is in Swiss francs, according to central bank data.

“There are still a lot of people with Swiss franc mortgages that will have to be paid off over the next several years,” said Nigel Rendell, senior emerging-markets strategist at RBC Capital in London. “This is going to weigh on the economic recovery.”

Hungary, which in 2008 became the first European Union member to receive an international bailout, suspended talks with the International Monetary Fund and European Union in July after the government refused to commit to narrowing the budget deficit in 2011. The government said in August it needs to spur economic growth after the worst recession in 18 years and that it wouldn’t seek a new loan from the Washington-based lender after the current program runs out in October.

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

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