March 14 (Bloomberg) -- The forint resumed its slide after a one-day reprieve as Hungary’s government failed to quell concern it will push for lower interest rates and deepen a rift with the European Union on constitutional changes.
The forint depreciated the most this month among more than 100 currencies tracked by Bloomberg after Prime Minister Viktor Orban called for a cut in interest rates and announced plans to convert companies’ foreign-currency loans while his lawmakers passed constitutional amendments criticized by the European Commission, the U.S. and Germany. The forint climbed from a nine-month low yesterday after Foreign Minister Janos Martonyi said the Cabinet had no intention to weaken it.
“The currency market has remained under pressure primarily as a result of concerns about monetary- and exchange-rate policy,” Budapest-based analysts at Intesa Sanpaolo SpA’s CIB unit, including Mariann Trippon, wrote in a research report today. “Plans to reduce the foreign-currency debt burden without announcing specific details of the methods to be used” are also weighing on the exchange rate, CIB said.
The forint weakened 0.3 percent to 305.07 per euro by 12:44 p.m. in Budapest, extending its slump this month to 3.2 percent. The government’s Debt Agency sold 55 billion forint ($212 million) of 12-month Treasury bills at an auction today at an average yield of 4.66 percent, the lowest cost on record, according to data from the agency on Bloomberg.
Hungary’s industrial production fell 1.4 percent in January from a year ago as the country struggled to exit its second recession in four years, data from the statistics office in Budapest showed today.
Hungarian President Janos Ader will sign the constitutional amendments approved by Parliament on March 11, Ader said in comments broadcast on M1 television late yesterday, adding he’s obliged to do so “regardless of whose taste that meets or whether I like it or not.”
Yields on the government’s 10-year bonds were little changed at 6.576 percent, within one basis point of the highest since Dec. 10.
The forint plunged after the statistics office said on March 12 that inflation fell to a seven-year low of 2.8 percent in February because of gas and electricity price cuts imposed by the government.
Lawmakers, who gave additional regulatory powers to the state Energy Office today, are ready to enact more legislation to push through further price reductions to cancel court decisions in favor of energy suppliers, Antal Rogan, who leads ruling party lawmakers, told reporters today.
The benchmark BUX stock index rose 1 percent today from the lowest close this year yesterday. OTP Bank Nyrt., Hungary’s largest lender, advanced 1.9 percent.
The government has no intention to nationalize lenders, Hungarian central bank President Gyorgy Matolcsy told his Austrian counterpart Ewald Nowotny this week, Nowotny said at a press conference in Vienna today.
Hungary will increase the share of local ownership in the banking system to above 50 percent, Orban said on March 12, which Danske Bank A/S said may amount to a nationalization threat. Intesa Sanpaolo SpA said on the same day it may cut its presence in Hungary, which it called a “nightmare” for lenders.
The Magyar Nemzeti Bank last month lowered 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 Matolcsy as the bank’s president.
The forint will probably remain above 300 per euro until Matolcsy presents his monetary policy plans more clearly, Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in an e-mailed report today.
While the market expects “the worst” in “aggressive monetary policy measures,” some government members are clearly losing their cool in view of the massive forint weakness,’’ Hecht said.
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