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Forint Gains Most in Five Months as Orban Sees EU Aid Progress

The forint gained the most in five months after Prime Minister Viktor Orban said the country was close to a “breakthrough” in starting aid talks with the European Union and the International Monetary Fund.

Hungary’s currency appreciated 1.7 percent to 294.67 per euro by 5:31 p.m. in Budapest, the biggest jump since November, after retreating to the weakest close in three months yesterday. Hungary’s central bank maintained its benchmark rate at 7 percent for a fourth month today, in line with the expectations of all 24 economists surveyed by Bloomberg News. The bank also announced it will sell euros to help lenders convert non-performing foreign-currency loans to forint.

The European Commission will decide tomorrow whether it will allow Hungary’s bailout talks to proceed, Orban told reporters in Brussels today. Jose Barroso, the commission’s president, welcomed Orban’s commitments “on the prompt and full implementation of the measures” regarding the independence of the central bank, according to a statement released in Brussels after the meeting between Barroso and Orban.

“It’s positive for the forint that Barroso also signalled progress,” Peter Karsai, a Budapest-based trader at Commerzbank AG, said by telephone, adding the central bank’s plan to sell euros was an additional boost for the Hungarian currency.

Policy Easing

Orban said the euro region’s executive arm will probably decide to file lawsuits against Hungary on some disputed issues, including the government’s decision to cut the central bank governor’s salary. The delay in talks on aid, which Orban requested five months ago, isn’t allowing the Magyar Nemzeti Bank to ease monetary policy, Brown Brothers Harriman and DZ Bank AG said.

“The MNB may have to stick to a hawkish tone as long as no IMF/EU loan deal is on its way,” Daniel Lenz, chief emerging-markets strategist at DZ Bank in Frankfurt, said in an e-mailed response to questions from Bloomberg today.

The introduction of new taxes, announced by the government yesterday, will boost inflation this year and next and the central bank “can’t say with certainty” that its 3 percent inflation target will be met in 2013, central bank President Andras Simor told reporters today.

“As inflation is already elevated the central bank will keep rates high for a longer period to keep consumer price growth under control,” Lenz said. “I would expect euro-forint trading much higher if the key rate was lower.”

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