Hungary Yields Plummet as Inflation Falls to Least in 39 Years

Hungary’s bond yields declined to the lowest level since 2005 as consumer prices grew at the slowest pace in 39 years, increasing scope for the central bank to cut interest rates.

The inflation rate slowed to 2.2 percent in March, compared with 2.8 percent in February, the statistics office said today. That was the least since 1974 and less than the 2.5 percent median estimate in a Bloomberg survey. Yields on the government’s 10-year bonds slipped four basis points, or 0.04 percentage point, to an eight-year low of 5.80 percent at 11:20 a.m. in Budapest, a decline of 56 basis points in April.

The Magyar Nemzeti Bank, which cut rates for eight straight months to a record low of 5 percent, may continue easing if price pressures remain moderate and financial markets stabilize, minutes of the March meeting showed yesterday.

“It seems increasingly likely the rate cut cycle stops at a later date and at a lower rate than previously supposed,” Zoltan Torok, a Budapest-based analyst at Raiffeisen Bank International AG (RBI), wrote in a note. It’s probable that “rate cuts will continue beyond the second quarter and the key rate might come even below 4 percent,” he said.

The forint strengthened less than 0.1 percent to 296.44 against the euro, extending this month’s gain to 2.6 percent, the best performance among the 31 major currencies tracked by Bloomberg.

Hungary’s Debt Management Agency raised a planned 50 billion forint ($220 million) in 12-month Treasury bills at an auction today. The average yield fell 39 basis points from the last sale two weeks ago to 4.16 percent, a record low, it 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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