The forint pared its biggest plunge in four weeks after Hungary’s ruling party denied a report by Vilaggazdasag late yesterday the government has picked Economy Minister Gyorgy Matolcsy as president of the central bank.
The forint dropped as much as 1.3 percent after Vilaggazdasag said on its website that Matolcsy’s appointment to replace Magyar Nemzeti Bank President Andras Simor, whose term ends next month, was “decided” in the evening. That report is “false” and a meeting of Fidesz party lawmakers this week isn’t discussing the issue, state-run news service MTI reported, citing Fidesz spokesman Mate Kocsis. Hungary completed investor meetings yesterday as it prepares to sell Eurobonds, its first international offering in almost two years.
“It is now pretty clear a ‘Matolcsy event’ is not fully priced in as many investors out there claim,” Luis Costa, a London-based strategist at Citigroup Inc., wrote by e-mail today. “Markets expect a bond deal soon after the end of the roadshow.”
Hungary’s currency weakened 0.7 percent to 294.7 by 5:41 p.m. in Budapest, its steepest drop in more than a week. The yield on Hungary’s dollar bond due March 2021 fell 11 basis points, or 0.11 percentage point, to 4.85 percent, compared with a record low of 4.1 percent in October.
The forint tumbled as much as 3 percent after Matolcsy said in December the bank should “bravely” use unorthodox methods to boost the economy. Hungary’s currency rebounded 1.7 percent last week, the biggest jump in six months, after Matolcsy and the central bank’s rate-setting Monetary Council each urged caution on using “unconventional” monetary tools.
The central bank should avoid “shock therapy” and “absolutely not” engage in “monetary financing” of Hungary’s deficit, the Wall Street Journal reported Economy Minister Gyorgy Matolcsy saying in an interview published on Jan. 30. The minister was also named as the most likely successor to Simor by other media including the Index news website.
Prime Minister Viktor Orban last week said in Brussels he will wait until March before he announces his decision.
The government may sell as much as 2.5 billion euros ($3.4 billion) in debt as early as this week, according to Royal Bank of Scotland Group Plc and Nomura Holdings Inc. The bonds may be in dollars, with a maturity of 10 years and a yield in the “low 5 percent” area, according to the fund management unit of Erste Group Bank AG.
Russia may buy $4.6 billion in Hungarian bonds with a 2.25 percent interest rate plus 5 billion euros in ruble-denominated debt in exchange for energy deals, Budapest-based newspaper Hvg reported, citing an agreement between Orban and Russian President Vladimir Putin last week.
While the two leaders discussed financial cooperation, no agreement was signed, Dmitry Peskov, Putin’s spokesman, said by phone today.
“I’d be surprised that Russia would lend them that much money at that low rate,” John L. Peta, who helps manage $3 billion of emerging-market debt at Threadneedle Asset Management Ltd., said by phone from London today.
Hungary will probably issue between $500 million and $1.5 billion in debt in dollars, Peta said.
Yields on the government’s 10-year forint bonds rose four basis points to 6.53 percent.
The government sold a record $3.75 billion of foreign bonds in March 2011 and 1 billion euros in May 2011. It scrapped plans for a foreign debt sale last year on anticipation of a loan from the International Monetary Fund.
While the IMF declined to provide the flexible credit line the government requested, Hungary doesn’t need a bailout and will tap the market, Orban said in Brussels on Jan. 30.
The denial of Matolcsy’s appointment may help sustain Hungary’s foreign-currency bond sale effort, Peter Attard Montalto, a London-based strategist at Nomura, wrote in an e-mail late yesterday.
“The priority remains short term bond issuance end this week start next and hence we are likely to see a major PR exercise to keep that on track,” Montalto wrote. “Matolcsy is probably the preferred candidate but it is actually quite currency dependent.”