Forint Heads for Biggest Two-Day Drop in 2 Months on Aid Concern

The forint headed for the biggest two-day drop in almost two months on concern Hungary won’t obtain aid from the International Monetary Fund and the European Union.

Hungary’s currency depreciated 0.4 percent to 283.07 per euro by 11:00 a.m. in Budapest, extending its decline in the past two trading sessions to 1.2 percent. The forint pared its rally this year to 11 percent, still the biggest gain among more than 100 currencies tracked by Bloomberg. Yields on the government’s benchmark 10-year bonds rose one basis point to 6.886 percent, after jumping 18 basis points on Oct. 26.

The IMF and Hungary disagree on the type of financial assistance for Budapest, chief government aid negotiator Mihaly Varga said in an M1 television interview today. The IMF has not announced any date to resume aid talks with Hungary, Iryna Ivaschenko, the Washington-based lender’s representative to Budapest, said in an e-mailed reply to questions from Bloomberg last week, almost a year after the Cabinet made a request for monetary support.

“It dawns on investors that there will be no aid deal soon,” Felix Herrmann, a Frankfurt-based analyst at DZ Bank AG, wrote in a research report today.

The cost of insuring against default on Hungary’s debt with credit-default swaps was little changed at 260 basis points, compared with a 2 1/2 year low of 235 basis points on Oct. 17.

Hungary’s central bank will reduce its benchmark rate tomorrow by 25 basis points to 6.25 percent in a third consecutive month of cuts to help the country emerge from a recession, according to 15 of 17 economists surveyed by Bloomberg. Two analysts expect the Monetary Council to keep borrowing costs unchanged.

“It would be a big surprise if the central bank didn’t deliver the rate cut tomorrow,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG, wrote in an e-mailed report today.

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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