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Forint Drops as Matolcsy Presents Rate-Cut Path: Budapest Mover

July 23 (Bloomberg) -- The forint weakened and Hungary’s bond yields fell the most in three weeks after the central bank cut its main rate for a 12th consecutive month and President Gyorgy Matolcsy said he expects to extend monetary easing.

The forint depreciated 0.5 percent to 295.8 per euro after strengthening 0.5 percent yesterday. Yields on the nation’s 3-year bonds dropped 17 basis points, or 0.17 percentage point, to 4.74 percent by 4:06 p.m. in Budapest. Financing costs fell to a record low at an auction of 3-month Treasury bills today.

The Magyar Nemzeti Bank lowered the two-week rate by 25 basis points to a record 4 percent, matching the forecast of all 21 economists in a Bloomberg survey. Policy makers may continue rate cuts in increments of as low as 10 basis points instead of 25 basis points, until the main rate falls to between 3 and 3.5 percent, Matolcsy told reporters.

“The biggest novelty was that the governor formulated a concrete rate target,” Pal Saaghy, a currency trader at broker Equilor Befektetesi Zrt., said by phone from Budapest. “The forint weakened on the announcement.”

Nine-month forward-rate agreements, used to wager on interest rates, fell 16 basis points to 3.65 percent, 54 basis points below the Budapest Interbank Offered Rate. The FRAs traded as much as 67 basis points above the BUBOR last month as investors were anticipating that the central bank may halt or reverse rate cuts.

The government’s Debt Management Agency sold 60 billion forint ($268 million) in three-month Treasury bills at an auction today before the central bank decision, 10 billion forint more than planned. The average yield was 4.02 percent, the lowest on record for that maturity, according to data from the agency on Bloomberg.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Marton Eder in Budapest at meder4@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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