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Forint Slides on Bigger Than Expected Rate Cut: Budapest Mover

The forint fell to a four-month low after Hungary’s central bank cut its benchmark rate more than expected just as speculation over a potential military strike on Syria worsened global investment sentiment.

The forint weakened 1 percent to 301.53 per euro by 4:08 p.m. in Budapest, the lowest level on a closing basis since April 26. Yields on Hungary’s ten-year bonds rose 11 basis points, or 0.11 percentage point, to 6.57 percent.

The Magyar Nemzeti Bank cut its two-week deposit rate to a record 3.8 percent from 4 percent after 12 consecutive monthly quarter-point cuts. Sixteen out of 22 economists had forecast a 10 basis-point reduction in a Bloomberg survey. Markets worldwide declined after U.S. Secretary of State John Kerry said Syria will be held accountable for using chemical weapons.

“The Monetary Council clearly has turned a little more cautious in the face of global headwinds, though wanted to push rates as low as possible as fast as possible still,” Peter Attard Montalto, a London-based analyst at Nomura Holdings Inc., wrote by e-mail.

Forward-rate agreements used to wager on three-month interest rates in three months’ time fell 13 basis points to 3.63 percent, 32 basis points below the Budapest Interbank Offered Rate.

“The current management of the central bank is not so keen on fine-tuning expectations,” Zsolt Kondrat, a Budapest-based economist at MKB Bank Zrt., a unit of Bayerische Landesbank, wrote by e-mail. “I still find this indifference towards market expectations somewhat worrisome.”

The currency has depreciated 3.2 percent since Hungary’s government announced plans to phase-out foreign-currency household mortgages mid-July.

Investors should sell the forint against the dollar as Hungary’s central bank has shown willingness to use its foreign-currency reserves as part of the mortgage rescue plan and to cut rates even at the risk of forint depreciation, Koon Chow and Durukal Gun, London-based strategists at Barclays Plc, wrote in an e-mailed report today.

The forint may weaken to 230 per dollar, the Barclays analysts said. Hungary’s currency depreciated 0.9 percent to 225.3 per dollar today.

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