The forint weakened to the lowest in seven months against the euro as the worst slump in Hungarian retail sales since June 2010 stoked expectations the central bank will cut interest rates next week.
Hungary’s currency depreciated as much as 1.2 percent to 298.61 per euro, its weakest intraday level since June 11, and traded at 297.72 by 3:34 p.m., extending this week’s loss to 1.5 percent.
November retail sales fell 4.1 percent from a year earlier, the statistics office in Budapest said today, missing the median estimate of eight analysts polled by Bloomberg for a 3.2 percent drop. The central bank, where President Andras Simor’s term ends in March, will cut its main rate to 5.5 percent on Jan. 29 from 5.75 percent, a sixth consecutive month of easing, according to 26 out of 27 economists surveyed by Bloomberg.
“The forint’s outlook given an expected rate cut next week and investor fears over upcoming changes in central bank leadership added up to drive the weakening of the currency,” Akos Ruzsonyi, a Budapest-based currency trader at Commerzbank AG, said in a phone interview. The market may be “testing the limits of the central bank’s comfort zone,” he said.
The Magyar Nemzeti Bank will hold its next policy meeting on Jan. 29.
“The main risks surrounding the forint relate to the central bank policy easing in the pipeline, which is set to be even more aggressive after the change of management at the National Bank of Hungary,”Benoit Anne and Esther Law, strategists at Societe Generale SA in London, said in a report.
The forint has depreciated 2.7 percent against the euro since Dec. 21, the day before Economy Minister Gyorgy Matolcsy said the next governor should “bravely use unorthodox tools” to help the economy recover from its second recession in four years. Matolcsy is Simor’s most-likely successor, according to the Index and hvg.hu news websites.
Concern looming over changes in the management of the central bank, elections due by April 2014 and the “generally unorthodox policy slant of the Orban government” point to vulnerabilities in the forint, Tim Ash, the head of emerging- market research at Standard Bank Group Ltd. in London, said in an e-mailed report today.
Money-market investors expect the central bank to cut the benchmark rate to 4.75 percent or less this year, according to data compiled by Bloomberg. The forward-rate agreement fixing interest costs in October traded 107 basis points, or 1.07 percentage points, below the Budapest interbank offered rate to which it settles.
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