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Hungary Bonds Drop Most in 3 Weeks on Central Bank Rate Warning

July 2 (Bloomberg) -- Hungary’s government bonds yields rose the most in more than three weeks after the central bank said it may have to raise interest rates to counter the impact of a planned tax on commercial banks’ deposits.

The slump in the benchmark three-year notes lifted yields nine basis points, or 0.09 percentage point, to 7.559 percent by 2:22 p.m. in Budapest, the biggest jump since June 8, after reaching the lowest ever for that security on June 29. The forint depreciated 0.1 percent to 286.30 per euro.

The impact of levying the tax on lenders’ deposits at the central bank would equal a rate cut of 2.5 percentage point, which the central bank could only counterbalance by increasing the benchmark rate, Andras Simor, president of the Magyar Nemzeti Bank, told reporters today.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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