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Forint Pares Gains After Central Bank Considers Cutting Rates

The forint pared gains and government bonds rallied after the country’s central bank maintained its benchmark rate at the European Union’s highest after considering a cut to borrowings costs.

Hungary’s currency gained less than 0.1 percent to 290.7 per euro by 4:13 p.m. in Budapest after strengthening as much as 0.5 percent earlier today. The Budapest-based Magyar Nemzeti Bank kept the two-week deposit rate at 7 percent. The yield on two year government debt fell 16 basis points to 8.16 percent.

Policy makers considered cutting the rate by a quarter point before “overwhelmingly” backing no change, central bank President Andras Simor told a news conference in Budapest. The central bank unexpectedly held rates last month as four first-year members of its rate-setting board outvoted Simor and his two deputies, who sought a third successive half-point increase.

“The key to stability of the Hungarian markets is the discussion on the IMF/EU bailout deal,” Aurelija Augulyte, Copenhagen-based emerging-market analyst at Nordea Bank AB, wrote in an e-mailed note after the central bank decision.

Hungary’s overhaul of retirement rules for judges, one of the issues obstructing bailout talks, may end up at the European Court of Justice, Justice Minister Tibor Navracsics said on M1 television today.

“A key concern is that the positive market developments will make Prime Minister Viktor Orban’s government less willing to compromise, which may backfire,” Augulyte said.

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