Forint Pares Plunge as Ruling Party Denies Central Bank Report
The forint pared its plunge after Hungary’s ruling party denied a report in Vilaggazdasag late yesterday the government has picked Economy Minister Gyorgy Matolcsy as president of the central bank.
The forint depreciated as much as 1.3 percent after the online edition of Vilaggazdasag newspaper said Matolcsy’s appointment to replace Magyar Nemzeti Bank President Andras Simor, whose term ends next month, was “decided” in the evening. That report is “false” and a meeting of Fidesz party lawmakers this week isn’t planning to discuss the nomination, state-run news service MTI reported yesterday, citing Fidesz spokesman Mate Kocsis.
“It is now pretty clear a ’Matolcsy event’ is not fully priced in as many investors out there claim,” Luis Costa, a London-based strategist at Citigroup Inc., wrote by e-mail today.
Hungary’s currency weakened 0.7 percent to 293.81 by 10:51 a.m. in Budapest, its steepest drop in more than a week. Yields on the government’s 10-year forint bonds were little changed at 6.499 percent.
The forint tumbled as much as 3 percent after Matolcsy said in December the bank should “bravely” use unorthodox methods to boost the economy. Hungary’s currency rebounded 1.7 percent last week, the biggest jump in six months, after Matolcsy and the central bank’s rate-setting Monetary Council each urged caution on using “unconventional” monetary tools.
The central bank should avoid “shock therapy” and “absolutely not” engage in “monetary financing” of Hungary’s deficit, the Wall Street Journal reported Economy Minister Gyorgy Matolcsy saying in an interview published on Jan. 30. The minister was also named as the most likely successor to Simor by other media including the Index news website.
Prime Minister Viktor Orban last week said in Brussels he will wait until March before he announces his decision.
Hungary completed investor meetings yesterday for a possible sale of Eurobonds, its first international offering in almost two years.
The government may sell as much as 2.5 billion euros ($3.4 billion) in debt as early as this week, according to Royal Bank of Scotland Group Plc and Nomura Holdings Inc. The bonds may be in dollars, with a maturity of 10 years and a yield in the “low 5 percent” area, according to the fund management unit of Erste Group Bank AG. The yield on Hungary’s dollar bond due March 2021 fell two basis points, or 0.02 percentage point, to 4.94 percent, compared with a record low of 4.1 percent in October.
“Markets expect a bond deal soon after the end of the roadshow,” Citigroup’s Costa said.
The government sold a record $3.75 billion of foreign bonds in March 2011 and 1 billion euros in May 2011. It scrapped plans for a foreign debt sale last year on anticipation of a loan from the International Monetary Fund.
While the IMF declined to provide the flexible credit line the government requested, Hungary doesn’t need a bailout and will tap the market, Orban said in Brussels on Jan. 30.
The denial of Matolcsy’s appointment may help sustain the bond sale effort, Peter Attard Montalto, a London-based strategist at Nomura, wrote in an e-mail late yesterday.
“The priority remains short term bond issuance end this week start next and hence we are likely to see a major PR exercise to keep that on track,” Montalto wrote. “Matolcsy is probably the preferred candidate but it is actually quite currency dependent.”
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