Forint Drops After Biggest Rally in 3 Weeks on Growth Concern

The forint weakened after the biggest rally in three weeks against the euro on concern the global economy is slowing and as Hungary struggles to recover from a recession.

The currency depreciated 0.2 percent to 283.37 per euro by 4:42 p.m. in Budapest. Yields on the government’s 10-year bonds were little changed at 7.247 percent, the lowest in more than two months.

European stocks dropped the most this month as the World Bank cut its East Asian growth forecast and euro-area finance ministers meet to discuss the region’s debt crisis. Hungary’s government sees the economy contracting 1.2 percent in 2012 versus a previously estimated 0.1 percent growth, and expanding 1 percent in 2013 compared with an initial projection of 1.6 percent, it said on Oct. 5.

The forint retreating “can be mostly explained by the correction on international markets,” Pal Saaghy, a Budapest- based current trader at broker Equilor Befektetesi Zrt., said by telephone today. “Bad news came out of Asia on the growth outlook.”

The Hungarian currency jumped 0.7 percent on Oct. 5, appreciating for a third consecutive day, after the government scrapped a tax plan that was an obstacle to obtaining aid from the International Monetary Fund.

Hungary will impose a higher levy on cash withdrawals, raise more than previously planned by taxing transactions at the state treasury and delay a pay increase for teachers to keep the budget deficit within 3 percent of gross domestic product, Economy Minister Gyorgy Matolcsy said at a press conference in Budapest on Oct. 5. The measures will help it forgo a tax on central bank deals which threatened to further delay IMF aid requested by Hungary 11 months ago.

It is uncertain if the government can meet collection targets for the tax on the state treasury, Saaghy said.

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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