Forint Gains Second Day as Yields Fall Before Rate Decision

The forint gained for the second day and Hungary’s three-year bond yields fell to a two-week low as the central bank looked set to cut rates to a record at its first monetary policy meeting chaired by a new president today.

The currency of Hungary, the European Union’s most indebted eastern country, has weakened 3.5 percent since Prime Minister Viktor Orban appointed former economy minister Gyorgy Matolcsy as central bank president on March 1. The Magyar Nemzeti Bank will probably trim its two-week deposit rate by 25 basis points to 5 percent, following a cumulative 1.75 percentage points in reductions in the past seven months, a Bloomberg survey showed.

“Today’s rate decision will reveal how far Hungarian central bank governor Matolcsy and prime minister Viktor Orban are ready to go regarding the forint weakness,” Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in an e- mailed report today. “The central bank’s dovish undertone is likely to keep the downside in euro-forint limited.”

The forint appreciated 0.1 percent to 305.83 per euro by 9:46 a.m. in Budapest. Yields on the government’s benchmark three-year bonds basis slid three basis points, or 0.03 percentage point, to 5.307 percent, the lowest since March 8.

The 25 basis-point cut is seen by 25 out of 29 analysts in the Bloomberg poll. Three economists projected a 50 basis-point easing and one saw no change.

“Along with the market consensus we expect the easing cycle to continue with another 25 basis point cut, despite the euro-forint rate trading above 300,” Gergely Tardos and Levente Papa, Budapest-based analysts at OTP Bank Nyrt., Hungary’s largest lender, wrote in an e-mailed report today.

Forward rate agreements used to wager on interest rates in three months fell one basis point to 4.4 percent today, matching the record low reached on March 20. The FRA contracts traded 70 basis points below the Budapest Interbank Offered Rate.

Matolcsy won’t talk to reporters, discontinuing the tradition of holding a press conference after the rates decision while still planning to publish written statements, spokesman Andras Simon said yesterday.

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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