Forint Drops to Four-Week Low on Hungary Central Bank Outlook

The forint fell to its weakest in four weeks on speculation the central bank will keep cutting interest rates and may take other steps to ease monetary policy after a new chief takes over next week.

Hungary’s currency declined for a second day after the Magyar Nemzeti Bank cut rates for the seventh month to a record low yesterday at the last meeting before bank President Andras Simor’s term ends this week. Economy Minister Gyorgy Matolcsy, who has urged policy makers to strengthen their support for economic growth, will take over from Simor next week, Napi Gazdasag newspaper reported today, matching earlier reports.

“Further rate reductions will depend on external sentiment and possibly unorthodox policies of the new management of the central bank,” Orsolya Nyeste and Zoltan Arokszallasi, Budapest-based analysts at Erste Group Bank AG, said in a research report today. “Both factors will also drive the forint which we see weakening to above 300 versus the euro by the end of the first quarter.”

The forint lost 0.3 percent to 296.24 per euro at 11:25 a.m. in Budapest, the weakest since Jan. 30. The currency has retreated 1.1 percent in February, heading for its third monthly decline. Yields on the government’s 10-year bonds rose eight basis points, or 0.08 percentage point, to 6.35 percent.

Simor, who opposed lowering rates, has been outvoted each month since August by four Monetary Council members appointed by the ruling Fidesz party. Prime Minister Viktor Orban will name the new chief on March 1.

“The forint is reacting to the expectation that Matolcsy, who is widely expected to intensify expansionary monetary policy,” will become Simor’s successor, Erste said.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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