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Forint Drops to 3-Week Low on Hungary Rate Cut, Europe Concern

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Feb. 26 (Bloomberg) -- The forint fell to its weakest in three weeks as the central bank cut interest rates to a record and concern deepened Europe’s debt crisis will escalate after inconclusive Italian elections.

Hungary’s currency declined as the Magyar Nemzeti Bank extended half a year of monetary easing before bank President Andras Simor’s term ends this week. Simor has opposed lowering rates and been outvoted each month since August by four Monetary Council members appointed by the ruling Fidesz party. Emerging-market stocks sank to a two-month low today as early results suggested Italy’s elections would lead to a hung parliament.

“The forint has weakened on the rate decision,” Annika Lindblad, a Helsinki-based analyst at Nordea Bank AB, wrote in an e-mailed report. “The currency performance is expected to remain weak as a more growth-concerned central bank chief is likely to take over in March.”

The forint lost 0.6 percent to 295.47 per euro, extending its decline this year to 1.4 percent. Yields on the government’s 10-year bonds rose four basis points, or 0.04 percentage point, to 6.266 percent by 4:44 p.m. in Budapest.

The central bank rate cut matched the forecast by all 26 economists surveyed by Bloomberg.

Economy Minister Gyorgy Matolcsy, who has urged the central bank to strengthen its support for economic growth, will take over from Simor next week, Nepszabadsag newspaper reported today, matching earlier reports from news websites including Index and vg.hu. Prime Minister Viktor Orban will name the new chief on March 1.

Seven months of monetary easing hasn’t led to any expansion in lending, showing that the central bank’s ability to boost growth is limited without “structural” measures to kickstart the economy, Simor told reporters today.

“We keep a negative view on the forint ahead of the nomination of the new governor,” Gaelle Blanchard, a London-based currency strategist at Societe Generale SA, wrote in an e-mailed report today.

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

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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