Hungary’s forint strengthened the most among emerging-market peers as the end to the eastern European nation’s cycle of cutting interest rates boosted the appeal of the currency. Government bonds fell for a second day.
The currency appreciated as much as 1 percent to 307.01 against the euro after central bank President Gyorgy Matolcsy said policy makers plan to hold the main rate at 1.35 percent for a “very long” period. That’s the biggest gain among 24 developing-nation peers and brings the advance in July to 2.6 percent. Yields on Hungarian three-year notes rose to a one-month high.
“The central bank’s declaration has cemented the upside short-term bias in the forint,” Piotr Matys, a London-based foreign-exchange strategist at Rabobank, said by e-mail. He expects the forint to advance toward 300 per euro.
The end to rate cuts is a sign the central bank is confident that forint gains won’t derail reaching its inflation target. The National Bank of Hungary lowered the two-week deposit rate on Tuesday by 15 basis points to a record, extending a five-month cycle of rate reductions to 75 basis points.
The forint traded 0.7 percent stronger at 307.81 per euro by 3:23 p.m. in Budapest. Yields on three-year government bonds rose five basis points to 2.18 percent.
The “policy rate has reached the level which ensures the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” rate-setters said in a statement published on the bank’s website after the meeting. The central bank is aiming for a 3 percent inflation rate, with a one percentage-point tolerance band above and below that level.
Consumer-price increases will probably accelerate to 2.4 percent in 2016 from 0.3 percent this year, the central bank said in its June inflation report. The rate quickened to 0.6 percent in June, the fastest pace since 2013.
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