March 27 (Bloomberg) -- The forint gained for a third day and bond yields traded within two basis point of a three-year low as Hungary’s central bank urged caution after cutting rates to a record yesterday.
The currency had the longest streak of advances in more than a month after central bank president Gyorgy Matolcsy allayed concern he would loosen monetary policy faster or via unconventional methods. The Magyar Nemzeti Bank said market volatility warrants a “cautious” approach even though the outlook for both inflation and the economy points to a further easing in monetary conditions.
“The Monetary Council’s more cautious tone caused the forint to strengthen as investors’ concern on extraordinary policy loosening abated,” Levente Blaho and Adam Keszeg, Budapest-based analysts at Raiffeisen Bank International AG, wrote in an e-mailed report today. “That may still be driving the forint stronger today.”
The forint gained 0.1 percent to 304.10 per euro by 4:14 p.m. in Budapest. It is heading for a 4.2 percent decline this quarter, the worst performance since the end of 2011. Yields on the government’s benchmark three-year bonds rose two basis points, or 0.02 percentage point, to 5.20 percent after a 16 basis-point plunge to the lowest since April 2010 yesterday.
The central bank trimmed its two-week deposit rate by 25 basis points to 5 percent yesterday, maintaining the pace of easing from the previous seven months. That was the first rates decision since Prime Minister Viktor Orban appointed former economy minister Matolcsy as the bank’s 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.
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