Hungary’s Economy Ministry blamed Nouriel Roubini for the forint’s weakening to a seven-month low against the euro, saying Minister Gyorgy Matolcsy’s comments on the currency didn’t cause the depreciation.
The ministry cited a recommendation last week by Roubini, co-founder of Roubini Global Economics LLC, to sell the forint in the absence of an International Monetary Fund backstop, according to an e-mailed statement today. The forint declined as much as 0.9 percent against the euro today to the lowest since June 12 and traded little changed at 295.36 per the single European currency at 7 p.m. in Budapest.
The forint has dropped 1.9 percent since Matolcsy wrote in his weekly column in Heti Valasz newspaper on Jan. 10 that Hungary should reject “traditional” economic models including policies that kept the forint strong to fight inflation. Matolcsy’s comments caused the forint’s drop in the last few days, Roubini economist Jelena Vukotic wrote in a report today.
“It has become clear that the forint hasn’t been weakening since the middle of last week because of the article by the minister,” the ministry wrote in a statement. “Instead -- as it’s so typical of speculators -- they just looked for an excuse behind which they can hide their attack.”
The forint started weakening on Jan. 10, two days after the Economy Ministry said Roubini published the note, because investors spent Jan. 9 “in preparation” for the attack, according to the e-mailed statement. The currency erased intra-day losses today after Hungary’s debt management agency said it hired banks to arrange meetings with bond investors as the country prepares for its first bond sale on international markets since May 2011.
Roubini analysts Danya Li Churanek, Jennifer Hsieh and Natalia Gurushina published a report Jan. 3 saying they prefer to “short the forint into rallies until the country signs a new deal with the IMF.”
The forint will “continue to feel the heat” because of the “controversial” policies of Prime Minister Viktor Orban’s government, Vukotic wrote in her report today. Matolcsy’s potential posting as the next central bank president contributed to market interpretation of his comments as a plan for “more aggressive monetary policy easing and a weaker currency,” Vukotic said.
Vukotic cited the prospect of the government tapping the central bank’s foreign currency reserves and using the absence of an IMF deal to maintain policies such as a “clampdown” on banks and extra taxes on selected industries, she said.
“The government’s taste for unorthodox policy steps has triggered even sharper sell-offs in the past,” Vukotic said.
Hungary’s central bank, which cut interest rates for five consecutive months through December, should follow the European Central Bank and the Federal Reserve in providing monetary stimulus and “bravely” using unorthodox tools, Matolcsy said in an interview with Budapest-based HirTV last month.
Matolcsy has been named a potential successor to central bank President Andras Simor, whose term ends in March, according to media reports including the Index news website.
The government’s self-described “unorthodox” policies have included new taxes, including special levies on the banking and telecommunications industries, as well as the nationalization of private pension fund assets to keep the budget shortfall below 3 percent and avoid losing EU development funds. The measures helped drive the economy into its second recession in four years.
A single strategy recommendation such as Roubini’s rarely moves markets as much as the forint has slid, Peter Attard Montalto, a London-based emerging-markets economist at Nomura International Plc, wrote in an e-mailed comment today.
“Insights into future policy are much more likely to have a dramatic impact, especially when concerning central bank currency policy and related issues of credibility,” Montalto wrote.
The forint may weaken “well above” 300 per euro if Matolcsy is appointed central bank president, Felix Herrmann, a Frankfurt-based analyst at DZ Bank AG, wrote in a report today. The yield on Hungary’s 10-year bonds fell one basis point, or 0.01 percentage point, to 6.257 percent today, compared with a seven-year low of 5.99 percent Jan. 3. The cost of insuring against default on Hungary’s debt with credit-default swaps rose seven basis points to 277.
The forint weakened to a record low of 324.24 per euro in January 2012 after the nation lost its investment-grade credit rating and Hungary clashed with the IMF over the conditions for an aid package. While IMF talks remain deadlocked, the currency has benefited from Orban’s efforts to cut the budget deficit and bond buying by central banks in the euro region and the U.S., which fueled appetite for riskier emerging market assets.
The forint appreciated 8.1 percent per euro and 10 percent to the dollar last year, the biggest gains among more than 100 currencies tracked by Bloomberg after the Polish zloty.
Central bank chief Simor, who has urged the bank to act “much more firmly” against inflation, has been outvoted along with his two deputies on rate cuts by the four non-executive members appointed by Prime Minister Viktor Orban’s lawmakers.
“Markets have actually become less sensitive to an IMF-backed financing package for Hungary,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in comments e-mailed to Bloomberg today. Investors “are more concerned about the further politicization of monetary policy once governor Simor’s term expires,” he said.