Forint Rises to Five-Month High as Hungary Economic Growth Beats Estimates

The forint rose to the strongest in a week as data showed Hungary’s economy expanded more than economists forecast and the country’s central bank pledged to take steps to help boost lending.

Hungary’s currency appreciated as much as 1.4 percent and traded 0.4 percent higher at 290.67 per euro by 5 p.m. in Budapest, the highest closing level since Feb. 8. The jump extended the forint’s rally this year to 8.3 percent, the most among all currencies tracked by Bloomberg. The benchmark BUX Index (BUX) rallied 0.5 percent to 19,132.49, as OTP Bank Nyrt. (OTP), Hungary’s largest lender, rose 2.4 percent.

Gross domestic product increased 1.4 percent from a year earlier, the statistics office in Budapest said today in a preliminary estimate. The median forecast of 16 economists in a Bloomberg survey was for a 0.9 percent rise. The central bank announced a two-year collateralized credit facility, a universal mortgage bond purchase plan and the expansion of the range of eligible collateral to help commercial banks boost lending.

“The announcement is positive for Hungarian markets,” Zoltan Arokszallasi and Orsolya Nyeste, Budapest-based economists at Erste Group Bank AG, wrote in an e-mailed report on the central bank statement. “The new tools should decrease the current liquidity constraints in the banking sector.”

China, which holds the world’s largest currency reserves, may invest in Europe’s bailout funds and sustain holdings of euro assets, said People’s Bank of China Governor Zhou Xiaochuan.

Bonds Rally

China’s announcement “certainly” had a positive impact on Hungarian markets, Felix Herrmann, a Frankfurt-based economist at DZ Bank AG, said in an e-mailed response to questions. “Better-than-expected GDP figures in Hungary might also be a trigger” for the rally in the forint, he said.

The government’s benchmark 10-year bonds rallied, cutting yields 25 basis points to 8.448 percent.

Hungarian markets pared gains as concern that European officials will delay Greece’s second bailout tempered optimism the euro area debt crisis will be resolved.

“The strong GDP data is positive, but doesn’t answer the challenges still facing the Hungarian economy,” Attila Gyurcsik, a Budapest-based equities analyst at Concorde Securities, said by telephone.

Hungary, the European Union’s most indebted eastern member, wants to reduce government debt yields to a sustainable level by striking a deal on an International Monetary Fund bailout, clearing the way to sell Eurobonds, Economy Ministry State Secretary Zoltan Csefalvay said yesterday in an interview in Budapest. The government’s “primary target” is to reduce yields to less than 7 percent, Csefalvay said.

“The previous mortgage bond purchase program established during 2010 was not able to substantially change the picture of contraction in mortgage lending by banks,” Janos Samu, another analyst at Concorde wrote in a report. “We do not think this one would be a game-changer either.”

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

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

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