Forint Drops Before Central Bank Meeting on Europe Debt Concern
The forint weakened amid speculation Hungary’s central bank will further cut interest rates and as demand dropped for riskier assets on concern Europe’s debt crisis will escalate after inconclusive Italian elections.
Traders increased bets the Magyar Nemzeti Bank will extend half a year of monetary easing as bank President Andras Simor’s term ends this week. Simor has opposed lowering rates and has been outvoted each month since August by four Monetary Council members appointed by the ruling Fidesz party. Emerging-market stocks dropped to a two-month low today after early results suggested Italy’s elections would result in a hung parliament.
“The forint is mainly falling on the worsening global sentiment after the Italian elections,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG. “The central bank question is probably also having an impact on the currency.”
The forint weakened 0.2 percent to 294.13 per euro, extending its depreciation to 0.9 percent this year. Yields on the government’s 10-year bonds rose four basis points, or 0.04 percentage point, to 6.263 percent by 10:41 a.m. in Budapest.
Policy makers will cut rates 25 basis points to 5.25 percent today, according to all 26 economists surveyed by Bloomberg.
Economy Minister Gyorgy Matolcsy, who has urged the central bank to more strongly support economic growth, will take over from Simor next week, Nepszabadsag reported today, matching earlier reports from news websites including Index and vg.hu. Prime Minister Viktor Orban will name the new chief on March 1.
Forward-rate agreements fixing interest in one month fell 18 basis points to 5.03 percent, the lowest intraday level in three weeks. The FRA contracts traded 21 basis points below the Budapest Interbank Offered Rate. Twelve-month FRA contracts fell two basis points to 4.28 percent.
“We expect the central bank to continue easing monetary conditions in the months ahead,” Gaelle Blanchard, a London- based currency strategist at Societe Generale SA, wrote in an e- mailed report today. “We keep a negative view on the forint ahead of the nomination of the new governor.”
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