Forint Weakens, Hungarian Bonds Slump Amid Fading IMF Optimism

The forint slid from its strongest in two weeks against the euro and Hungarian bonds fell amid speculation the European Union’s most-indebted eastern member may struggle to get International Monetary Fund support.

The Hungarian currency lost 0.6 percent to 305.69 per euro by 11:32 a.m. in Budapest, snapping a 4.2 percent gain in the previous four days. The yield on government debt due in 2017 rose two basis points, or 0.02 percentage point, to 8.308 percent.

Hungary, which received an IMF-led bailout in 2008, is seeking renewed talks with the fund, the Economy Ministry said on Nov. 17, sending the forint and bonds rallying. The move may help the country avoid losing its investment-grade credit rating, central banker Ferenc Gerhardt told ATV channel yesterday.

“We are still of the view that one of the three main rating agencies will downgrade Hungary by the end of the year,” BNP Paribas SA strategists led by London-based Bartosz Pawlowski said in a report today. The deal will take a long time before “being finalized as it is likely to involve conditions that the Hungarian government might be reluctant to fulfill at first,” they said.

Global stocks fell and most emerging-market currencies slid as an impasse on U.S. budget cuts raised speculation the world’s largest economy may face another credit downgrade and data signaled faltering economic growth from Japan to Singapore.

“One of the most important reasons why central and eastern European currencies are weak is the bleak eurozone growth outlook, and that won’t change anytime soon,” Pawlowski and colleagues wrote.

An IMF team in Hungary, which was in the country for a regular Article IV review, will cut short its visit and return to Washington D.C. to discuss Hungary’s financial assistance request with the lender’s management, Managing Director Christine Lagarde said.

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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