Forint Extends Worst Emerging-Market Plunge This Week on Rates

The forint extended the worst emerging-market slide this week as Hungary’s central bank pledged to support the government’s economic policy, signaling further easing after 18 straight months of interest rate cuts.

The currency of Hungary, the most indebted nation in the east of the European Union, weakened 0.8 percent to 311.88 per euro by 10:51 a.m. in Budapest. It is heading for a 2.3 percent decline this week, the most since June and the worst among the 24 emerging-market currencies tracked by Bloomberg. The forint depreciated 4.7 percent in January, the biggest slide after Argentina’s peso, Russia’s ruble and the South African rand.

Magyar Nemzeti Bank President Gyorgy Matolcsy today pledged a “close alliance” with the government, which has advocated lower rates to spur recovery from recession. Even as emerging-market central banks including South Africa tightened monetary policy to bolster their currencies, Matolcsy said this week that Hungary’s current-account surplus set it apart from peers and below-target inflation provided room for easing.

“The forint selloff has been fueled by comments from the governor, who believes he will be able to ease monetary policy further,” Jan Bures, a currency analyst at CSOB AS in Prague, wrote in a report today. “He argues the fundamentals are good and inflation low. The markets don’t seem to buy that.”

Hungary’s foreign trade surplus widened to 825 million euros ($1.1 billion) in November from 759 million euros in the previous month, within 5 million euros of the 2 1/2 year-high reached in September, data showed today. The forint has been led by global markets and not Hungary’s economic fundamentals, Prime Minister Viktor Orban said on MR1 radio today.

Strong Current

“Hungary has gone a long way in the past years toward removing macroeconomic imbalances,” Bures said. “The question is if the Hungarian fundamentals are good enough for the central bank to be able to go against the current.”

The Federal Open Market Committee said this week it will cut monthly bond purchases by $10 billion to $65 billion, keeping the pace of the reduction from the previous month. Monetary-policy makers across emerging markets are weighing the Fed’s move against the need to boost economic growth.

Hungary’s central bank slowed its rate reductions to 15 basis points on Jan. 21, lowering the benchmark to a record 2.85 percent, following 20 basis-point moves in the previous five months and 12 quarter-point cuts between August 2012 and July 2013.

The yield on Hungary’s 10-year forint bonds increased seven basis points, or 0.07 percentage point, to 6.07 percent, the highest since Dec. 3, data compiled by Bloomberg show.

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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