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Hungary Yields Drop Third Day on Rate Outlook: Budapest Mover

Hungary’s bond yields fell for a third day as central bank policy makers said they plan to continue easing after cutting the main interest rate for a 12th consecutive month yesterday.

Yields on the nation’s three-year bonds declined 14 basis points, or 0.14 percentage point, to 4.59 percent as of 4:14 p.m. in Budapest, bringing the three-day retreat to 33 basis points. The forint was little changed at 295.8 per euro after dropping 0.5 percent yesterday. The Magyar Nemzeti Bank lowered the two-week rate by 25 basis points to a record 4 percent.

Policy makers may continue with 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, Governor Gyorgy Matolcsy said yesterday. The Monetary Council plans to proceed with the easing over the “medium term,” Adam Balog, one of Matolcsy’s deputies, said in an MR1 radio interview today.

“It’s all pointing toward a looser monetary policy than the market and analysts expected, which may weigh on the forint,” Levente Blaho and Adam Keszeg, Budapest-based analysts at Raiffeisen Bank International AG, wrote in a report today.

The central bank plans more than just “one or two” additional cuts in the interest rate, Balog told MR1.

Hungary wants to “phase out” foreign-currency mortgages, Economy Minister Mihaly Varga said today, as the cabinet discusses ways to help homeowners amid concern lenders will be forced to take losses. The forint plunged 12 percent in 2011, when the government allowed homeowners to repay loans at below-market exchange rates.

The foreign-currency loan plan has the potential to alter Hungary’s risk assessment in a way that also influences the central bank’s rate policy, Pasquale Diana, a London-based economist at Morgan Stanley, wrote in an e-mailed report today.

“Only a major setback in risk could derail the easing cycle,” Diana said. “We would watch particularly carefully the unfolding story on relief for foreign-currency mortgage holders.”

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