The forint dropped the most in a month as central bank President Gyorgy Matolcsy signaled further measures to loosen policy and Goldman Sachs Group Inc. recommended selling the currency. Yields plunged at a bond sale.
Matolcsy, Hungary’s former economy minister who took over at the bank last month, said the achievement of price stability meant policy makers must focus on supporting the government’s quest for economic growth, state-run MTI news service reported today. Matolcsy, who announced plans two weeks ago to provide cheap loans to boost lending, said the bank was only at the start of its monetary policy overhaul.
“The central bank will continue to accelerate monetary policy loosening that will result in higher inflation and forint weakness,” Daniel Hewitt and Piotr Chwiejczak, London-based analysts at Barclays Plc, wrote in an e-mailed note today.
Hungary’s currency depreciated 0.8 percent against the euro to 297.63 by 4:06 p.m. in Budapest, paring its gain this month to 2.2 percent. The forint may weaken to 310, analysts at Goldman including Thomas Stolper in London wrote in an e-mailed report.
The central bank will probably be prepared to ease monetary policy even at the expense of a weaker currency, the Goldman analysts wrote.
The government’s Debt Management Agency sold 62.5 billion forint ($274 million) in bonds at an auction today, 19.5 billion forint more than planned. The average yield on 30 billion forint in 2016 notes fell to 4.65 percent from 4.81 percent two weeks ago and borrowing costs for 2018 and 2028 bonds also declined, according to data from the agency on Bloomberg. The agency raised an additional 19.9 billion forint in debt at a later, non-competitive tender.
As part of additional measures to boost economic growth, the central bank will propose to limit eligibility in its two-week bill facility, which is the main instrument of monetary policy, to exclude foreign banks that are not active lenders in Hungary, Matolcsy said.
The restriction proposed by Matolcsy has an impact similar to a rate cut, which hurts the forint, analysts at Erste Group Bank AG including Zoltan Arokszallasi in Budapest wrote in an e-mailed report.
The central bank’s Monetary Council will probably reduce its benchmark rate by 25 basis points to a record 4.75 percent on April 23, according to 13 out of 14 analysts in a Bloomberg survey. One economist forecasts a 50 basis point cut.