The forint weakened for a fifth day, set for the longest losing streak since January, as investors speculated Hungary’s central bank will cut rates for a ninth consecutive month today.
The Monetary Council will probably reduce its benchmark rate from a record-low 5 percent to 4.75 percent, according to 25 out of 26 analysts in a Bloomberg survey. Daniel Hewitt, a London-based economist at Barclays Plc, forecasts a 50 basis-point cut. Magyar Nemzeti Bank President Gyorgy Matolcsy said policies to help kickstart economic growth more effectively have only just started, according to an interview with state news service MTI on April 18.
“The central bank will try and avoid too many surprises on the rate-setting side as it works on more policy tools to boost economic growth,” Benoit Anne, a London-based strategist at Societe Generale SA, wrote in a research report today. “The government and central bank will increasingly focus on a much lower policy rate and weaker currency as the year progresses and the economy fails to recover.”
Hungary’s currency retreated 0.5 percent to 300.50 per euro by 10:55 a.m. in Budapest. Yields on the government’s five-year bonds slid eight basis points, or 0.08 percentage point, to 4.98 percent, a record low.
Hungary’s forward rate agreements used to wager on interest in one month fell two basis points to 4.57 percent, within one basis point of a record low. The FRA contracts traded 25 basis points below the Budapest Interbank Offered Rate.
Services and manufacturing output in the euro area, Hungary’s biggest trading partner, contracted for a 15th month in April as the currency bloc struggled to emerge from a recession, data from London-based Markit Economics showed today.
German factory and service company indexes also unexpectedly dropped to show contraction.
“The worse-than-expected German PMI data is not helping risk appetite, which may be negative for the forint,” Karoly Bamli, a Budapest-based trader at Commerzbank AG, wrote by e-mail today.
The central bank proposes limiting eligibility for its two-week bill facility, the main instrument of monetary policy, to exclude foreign banks not active in lending in Hungary, Matolcsy told MTI last week. The planned move will amount to a further effective rate cut, according to analysts at banks including Erste Group Bank AG and Barclays.
“The statement released after the meeting will be closely watched for any hints on the future interest rate trajectory and/or details of other changes in the monetary policy toolkit, especially the planned re-design of the two-week facility,” Mariann Trippon, a Budapest-based economist at CIB Bank Zrt., a unit of Intesa Sanpaolo SpA, wrote in a research report today.
The central bank will announce the rate decision at 2 p.m. in Budapest, followed by a statement at 3 p.m.