Hungary’s forint gained for the first time in four days after Foreign Minister Janos Martonyi said the government had no intention of weakening the currency.
The forint appreciated after Martonyi told reporters in Bratislava that the cabinet isn’t pleased by forint weakness because it increases the cost of servicing foreign-currency debt owned by households, companies and the sovereign. The currency plunged to the weakest in nine months earlier today after Prime Minister Viktor Orban said yesterday that Hungary needs lower interest rates to boost lending and must reduce the burden of foreign loans and free up exchange rate policy.
The forint gained 0.3 percent to 305.02 per euro by 5:06 p.m. in Budapest, after reaching as low as 307.49. The cost of insuring against non-payment on Hungary’s debt with credit-default swaps rose five basis points to 343. CDS prices increased 33 basis points in the last three days, set for the biggest jump over such a period in 14 months, according to data compiled by Bloomberg.
“The main thing is for the forint rate to be more or less stable,” Martonyi said. “I wouldn’t name a precise range for the exchange rate but there is no intention to weaken the forint.”
Investors had speculated the government may want to depreciate the forint to boost exports and revive the economy, which shrank 2.7 percent in the fourth quarter, compared with the same period of 2011, according to statistical office data.
The cabinet, which has forced banks to take losses on foreign-currency mortgages of households, is working on a plan this year to help smaller companies convert their loans into forint, Orban said yesterday.
“It’s in vain to have our own currency” if Hungary can’t make use of its advantages because the foreign-currency loan burden means “we are captives to an exchange rate policy,” Orban said in Budapest yesterday.
Orban’s comments “strengthened the views of those market participants who think the government would like to weaken the forint,” Gergely Tardos and Levente Papa, Budapest-based analysts at OTP Bank Nyrt., Hungary’s largest lender, wrote in a research report today. “Hungary’s default risk premium jumped in tandem with the forint’s slide.”
Inflation slowed more than analysts estimated to a seven-year low of 2.8 percent, the statistics office in Budapest said yesterday. Orban said the data showed Hungary had reached the central bank’s 3 percent target.
The Magyar Nemzeti Bank last month cut interest rates in the seventh consecutive 25 basis point step to 5.25 percent, matching a record low. That was the last rate-setters’ meeting before the government this month appointed former economy minister Gyorgy Matolcsy as the bank’s president and deputy state secretary Adam Balog as a vice president.
There is no reason to change the bank’s “cautious” rates policy, Dow Jones reported today, citing a written interview with Balog. The forint’s recent volatility is “unwelcome” and not justified by Hungary’s fundamentals, Balog said, according to the report.
Yields on the government’s 10-year forint-denominated bonds rose five basis points to 6.58 percent, the highest since Dec. 10. Yields on dollar-denominated bonds maturing in 2023, which the government sold on Feb. 12, rose three basis points to a record high of 5.75 percent, compared with 5.22 percent when it first started trading, data compiled by Bloomberg show. The benchmark BUX stock index slid 1.1 percent to the lowest close this year.
Hungarian assets slumped after Orban’s lawmakers passed amendments two days ago limiting the power of the constitutional court, which the German government yesterday said overshadowed relations between the two countries.
Orban’s comments, including a call for majority local ownership in the Hungarian banking system, may lead to further drops in the forint and Hungarian stocks and increase CDS prices, Carsten Hesse, a London-based analyst at Wood & Co. said in an e-mailed report today. Orban’s decision to finance Hungary without International Monetary Fund aid will make the country more vulnerable, Hesse said.
The forint may depreciate to 320 per euro, within 4 forint of the all-time low set in January 2012, Guillaume Salomon, a London-based strategist at Societe Generale SA, wrote in an e-mailed report today. The bank’s previous target for the Hungarian currency was 308 per euro.
The forint’s decline is “absolutely temporary,” Antal Rogan, the leader of ruling party lawmakers in Parliament, told reporters yesterday, echoing comments from Economy Minister Mihaly Varga the day before.
“In light of the price action in forint assets, the government could choose to turn and change the tone of its language,” Salomon wrote. “We are not very confident about such a change of heart though.”