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Forint Rises as Hungarian Bonds Gain on IMF Progress

Hungary’s forint gained to a one-month high and bonds rallied as the government said it reached a compromise on a central bank law that will probably lead to bailout talks and as Greek elections eased euro-exit concern.

The forint appreciated 0.5 percent to 292.33 per euro at 5:30 p.m. in Budapest, the strongest since May 15. The government’s benchmark 10-year bonds rallied, cutting yields nine basis points, or 0.09 percentage point, to 8.36 percent.

The victory of pro-bailout parties in Greece reduces the chances of contagion in Europe and helps Hungary’s outlook for continued debt financing from the markets, Mihaly Varga, Hungary’s chief negotiator for an International Monetary Fund-led aid deal, told MR1 state radio today. The government has completed details of an amendment to a disputed central bank law, which may be acceptable to the Magyar Nemzeti Bank, and probably will be submitted to Parliament this week, Varga said.

“A serious obstacle to the bailout talks may actually be removed,” Levente Blaho and Adam Keszeg, analysts at Raiffeisen Bank International AG, wrote in a research report today. “The forint started the week on a month high, which was mainly to do with the Greek election news and also helped by the comments” from Varga, the Raiffeisen analysts added.

Hungary requested International Monetary Fund aid in November as the country’s credit grade was cut to junk and the forint fell to a record low against the euro. Talks have yet to start because the IMF, the European Union and the European Central Bank objected to the central bank law, which they said threatened monetary-policy independence.

Compromise Plan

The compromise on the central bank includes a letter Prime Minister Viktor Orban will send to the ECB and the European Commission, the EU’s executive arm in Brussels, assuring them that he won’t name additional rate-setters to the Monetary Council and won’t name a new vice president before central bank President Andras Simor’s term expires.

The bill will also limit the number of non-executive Monetary Council members so they don’t exceed twice the number of executive members, Varga said. The council currently has seven members, three executive members composed of Simor and his two deputies and four non-executive members.

Hungary’s ruling Fidesz party supports plans to approve the new version of the central bank law next week to allow bailout talks to start, Antal Rogan, the head of the Fidesz parliamentary group, told reporters in Budapest today.

Greece’s New Democracy and Pasok parties won enough seats to form a majority coalition, according to Interior Ministry projections, easing concern that Greece would reject austerity measures needed to qualify for international aid.

The cost of insuring against default on Hungary’s debt with credit-default swaps fell two basis points to 554 basis points, according to data compiled by Bloomberg.

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