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Forint Falls 1st Day in Four on Report Bank to Discuss Stimulus

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April 3 (Bloomberg) -- The forint weakened for the first time in four days, erasing earlier gains, after news website VGO reported that policy makers will meet to discuss measures to stimulate the economy.

The central bank, which declined to comment on the report, later said its President Gyorgy Matolcsy will hold a press briefing in Budapest tomorrow, without specifying the topic. The forint gained as much as 1.8 percent in the past six days as policy makers urged caution in monetary easing after cutting the benchmark rate by 25 basis points to a record low 5 percent on March 26, in the first meeting chaired Matolcsy.

“The markets are still struggling with a guessing game in terms of what the central bank’s next move will be, beyond simple cuts on the policy rates,” Luis Costa, a London-based strategist at Citigroup Inc., wrote by e-mail today. The increased focus of policy makers on growth “calls for a cautious stance on the forint,” Costa said.

The forint dropped 0.1 percent to 302.55 per euro by 2:46 p.m. in Budapest after climbing as much as 0.6 percent. Yields on the government’s benchmark 10-year bonds fell nine basis points, or 0.09 percentage points, to 6.18 percent.

Economy Minister Mihaly Varga opposes devaluing the forint to increase exports and wants a stable currency, the Wall Street Journal reported yesterday. While the government “clearly prefers” lower rates, the central bank’s easing may be approaching a point which causes a selloff in some bonds, Varga said, according to the Journal’s report.

Dovish Stance

Varga’s comments may have been a “prelude to a more dovish stance by the central bank going forward,” Costa said.

The currency advanced to a three-week high in intraday trading after data showed yesterday that the fiscal deficit came in at 2.1 percent of gross domestic product in 2012, below the European Union’s 3 percent limit. There are enough budget reserves to weather risks this year, Economy Ministry State Secretary Zoltan Csefalvay said 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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