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Forint Gains as Hungary Central Bank Sees Caution After Rate Cut

March 26 (Bloomberg) -- The forint strengthened the most in more than a week as Hungary’s central bank called for caution in monetary policy after cutting rates to a record low. Bond yields plunged.

The Magyar Nemzeti Bank trimmed its two-week deposit rate by 25 basis points to 5 percent, maintaining the pace of easing from the previous seven months in the first decision since Prime Minister Viktor Orban appointed former economy minister Gyorgy Matolcsy as central bank president. The bank would only cut rates further if inflationary pressures stay moderate and if the market environment stabilizes, it said in a statement published on its website after the decision.

“The forint gained as the projections that they may cut as much as 50 basis points was priced out,” Pal Saaghy, a Budapest-based currency trader at broker Equilor Befektetesi Zrt., said by phone today. “The key thing is they want to conduct a cautious rate policy.”

The forint appreciated 0.9 percent to 303.53 per euro by 4:13 p.m. in Budapest, the biggest advance since March 18. Yields on the government’s benchmark three-year bonds basis slid 18 basis points, or 0.18 percentage point, to 5.163 percent, the lowest since April 2010.

Hungary’s currency weakened 3.5 percent through yesterday since Matolcsy’s appointment on March 1, on speculation he may follow seven months of easing with bigger cuts or introduce unconventional measures.

The 25 basis-point cut matched the forecast of 25 out of 29 analysts in a Bloomberg survey, with three projecting a 50 basis-point easing and one seeing no change.

Matolcsy didn’t talk to reporters, discontinuing the tradition of holding a press conference after the rates decision.

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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