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Forint Advances 2nd Day on Rate Setters’ Caution: Budapest Mover

The forint gained for a second day and Hungary’s bond yields fell as policy makers called for “increased caution” in any futher loosening after they cut interest rates for an 11th consecutive month to a record low.

The forint appreciated 0.6 percent to 297.4 per euro by 4:45 p.m. in Budapest, extending its second-quarter gain to 2.2 percent, the only currency to advance over the period among more than 20 emerging-market peers tracked by Bloomberg. Yields on the government’s benchmark 10-year bonds dropped 11 basis points, or 0.11 percentage point, to 6.76 percent, after reaching their highest since December yesterday.

The Magyar Nemzeti Bank reduced its benchmark rate by 25 basis points to 4.25 percent, matching the forecast of all 25 analysts polled by Bloomberg. “Increased caution” is warranted on potential further rate cuts in the “volatile” global environment, the Monetary Council said in a statement on the bank’s website.

“The council was definitely more cautious in assessing the room for maneuver in monetary policy this time,” Zoltan Arokszallasi and Orsolya Nyeste, Budapest-based analysts at Erste Group Bank AG, wrote in an e-mailed report today. “There is room for one more 25 basis-point rate cut in July, to 4 percent. However, we anticipate no further easing this year.”

The cost of insuring against default on Hungary’s debt with credit-default swaps fell 14 basis points to 352, after reaching the highest since April yesterday.

“The Monetary Council is also likely to take comfort from the fact that Hungarian asset prices have held up well relative to peers amid the recent sell-off,” Nora Szentivanyi, a London-based analyst at JPMorgan Chase & Co, wrote by e-mail today.

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