Investors extended wagers on Hungary cutting interest rates after inflation dropped to the slowest in 39 years.
Forward-rate agreements for three-month interest in three months time fell eight basis points to 3.46 percent by 12:56 p.m. in Budapest, 29 basis points below the Budapest interbank offered rate, the biggest discount in two weeks. The forint gained 0.1 percent to 299.04 per euro, paring its depreciation in the third quarter to 1.3 percent.
Consumer price growth slowed to 1.3 percent in the year to August from 1.8 percent the previous month, the statistics office said today. The Magyar Nemzeti Bank, which cut benchmark borrowing costs by 20 basis points last month to a record 3.8 percent, may reduce to as low as 3 percent if the forint’s level allows, according to Daniel Hewitt, a London-based economist at Barclays Plc. Inflation will probably slow further this year and next as the government mandates more utility and energy price cuts, Hewitt said in an e-mailed report today.
“The very low headline inflation supports continued National Bank of Hungary rate cuts,” Hewitt said. “We do not expect the NBH will hike rates before 2015.”
Nine-month forward-rate agreements, which last week priced in an increase of as much as 38 basis points, traded four basis points above the BUBOR today.
The outlook for further rate cuts spurred by the decline in inflation is “forint negative,” Zoltan Torok, a Budapest-based analyst at Raiffeisen Bank International AG (RBI), wrote in an e-mailed report today. “We expect euro-forint not to return to below the 300 level in a stable manner in the next 1.5 years.”
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