The forint, government bonds and Hungarian banking shares all rallied as the central bank unveiled measures to boost lending and economic growth.
Magyar Nemzeti Bank President Gyorgy Matolcsy announced plans to provide interest-free loans to commercial banks to help expand credit provision for smaller companies and free them from foreign-currency denominated loans. While the central bank will use as much as 3 billion euros ($3.8 billion) of its foreign reserves to help reduce the short-term external debt of the government and lenders, the level of reserves will stay within safe limits, Matolcsy told reporters at the bank.
“The effect on the forint was positive, thanks in parts to previous market speculation about much more aggressive steps, which led to a type of relief,” Gergely Gabler, an analyst at Equilor Befektetesi Zrt. in Budapest, said in an interview at the central bank. “On top of that, if the targets are met, the country’s vulnerability can decrease somewhat.”
The forint advanced 0.8 percent to 300.30 per euro by 5:10 p.m. in Budapest after weakening as much as 0.6 percent, the biggest advance among 31 major currencies tracked by Bloomberg. Yields on the government’s benchmark 10-year bonds fell nine basis points, or 0.09 percentage point, to 6.025 percent, the lowest since Jan. 3.
OTP Bank Nyrt., Hungary’s largest lender, rose 2.3 percent to 4,272 forint. FHB Jelzalogbank Nyrt., a mortgage lender, strengthened 0.3 percent to 359 forint. Banks may gain from Matolcsy’s plan as they get funding at below-market rates, Gabler said.
The central bank’s foreign reserves were at 32.3 billion euros on Feb. 28, 4 percent higher than a year earlier.
Hungary’s Debt Management Agency sold 60 billion forint ($257 million) in bonds at an auction today, 15 billion forint more than planned. The sale, whose results were announced as Matolcsy was making his announcement, included 30 billion forint in 2016 notes at an average yield of 4.81 percent, compared with 5.22 percent at last auction of that maturity on March 21, according to data from the agency on Bloomberg.
The forint has gained 2 percent since policy makers urged caution in monetary easing when they cut the benchmark rate by 25 basis points to a record low 5 percent on March 26, in the first meeting headed by Matolcsy.
The central bank is turning its focus to getting Hungary out of its second recession in four years as policy makers have met the main monetary policy goals of price and financial stability, Matolcsy said.
The plan is “not quite as radical” as some investors expected, which “also means that the overall impact on lending and economic growth is likely to be fairly limited,” Neil Shearing, a London-based analyst at Capital Economics, wrote in an e-mailed note.