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Forint Bond Yields Drop First Day in Four on Interest Rate Cut

Hungary’s three-year bond yields fell for the first time in four days after the central bank cut its benchmark rate for a third consecutive month to help pull the country from recession.

The yield on three-year government debt dropped six basis points to 6.288 percent, after rising 30 basis points in the previous three sessions. Hungary’s currency appreciated 0.3 percent to 284.2 per euro by 4:20 p.m. in Budapest, after sliding to the weakest since Oct. 5 yesterday.

The Magyar Nemzeti Bank reduced the two-week deposit rate by a quarter-point to 6.25 percent, still the European Union’s highest, matching the forecast of 16 of 18 economists in the poll. Two forecast no change. The four policy makers appointed by Prime Minister Viktor Orban’s lawmakers outvoted central bank President Andras Simor and his two deputies in the past two months to help boost economic growth even as inflation accelerated.

“With the latest activity data suggesting that the economy remains mired in recession, we think the four external Monetary Council members once again voted to cut rates today,” William Jackson, a London-based analyst at Capital Economics, wrote in an e-mailed report.

Simor said a “narrow” majority backed today’s vote to cut, over a proposal to keep the main rate unchanged. The meeting’s minutes will be published on Nov. 14.

Bailout Concern

Hungarian assets weakened in the second half of October on concern the country won’t obtain an international bailout. The International Monetary Fund and Hungary disagree on the type of financial assistance required, chief negotiator Mihaly Varga said yesterday, almost a year after the Cabinet made a request for support.

“Financial vulnerabilities and a lack of progress towards an IMF deal mean that there is limited room for further easing,” Jackson wrote.

Forward-rate agreements used to bet on interest rates in three months fell 11 basis points to 5.88 percent. The FRAs traded 66 basis points below the Budapest Interbank Offered Rate, which is fixed daily at 11 a.m. and hasn’t incorporated today’s monetary easing.

“The majority of the monetary council will vote for further interest rate cuts whenever the actual market sentiment is not pronouncedly bad,” Zoltan Torok, a Budapest-based economist at Raiffeisen Bank International AG (RBI), wrote by e-mail after today’s vote.

Emerging-market stocks rose for the first time in three days as commodities gained, with the benchmark MSCI Emerging Markets index advancing 0.3 percent.

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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