Forint Caps Biggest Weekly Decline in Three Months on Rate Cut
The forint had the biggest weekly decline in three months on speculation Hungary’s central bank will repeat this week’s unexpected cut in the benchmark rate and that the government faces delays in bailout talks.
Hungary’s currency gained 0.4 percent to 284.01 per euro by 4:23 p.m. in Budapest, paring its five-day retreat to 2 percent and its slide in August to 0.8 percent, the worst weekly and monthly performance on a closing basis since May. Yields on the government’s benchmark three-year bonds fell seven basis points, or 0.07 percentage point, to 6.735 percent compared with 7.299 percent at the end of July.
The Magyar Nemzeti Bank lowered the two-week deposit rate by 25 basis points to 6.75 percent on Aug. 28. Of 18 economists in a Bloomberg survey, 17 projected the bank would leave rates unchanged while Lars Christensen from Danske Bank A/S (DANSKE) forecast the cut. The Monetary Council voted to ease monetary policy by a “tight” margin even as Hungary faces delays in meeting its inflation goal, MNB President Andras Simor told reporters yesterday.
“The rate cut was premature and has put pressure on the Hungarian currency,” Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in a research report today. “Markets seem to assume that the recent rate cut was not the last one,” Hecht said, adding that the euro-forint rate still has “upside potential.”
Forward-rate agreements used to wager on interest in three months fell four basis points to 6.40 percent, the lowest since September 2011 yesterday. The FRAs traded 50 basis points below the Budapest Interbank Offered Rate, indicating expectations for as much as half a percentage point cut in the benchmark rate.
Prime Minister Viktor Orban insists on a tax on transactions at the central bank, threatening aid talks with the International Monetary Fund and the European Union which object to the measure, Origo reported today, citing unidentified government officials.
The Economy Ministry and the office of Mihaly Varga, the minister in charge of the aid talks, didn’t immediately respond to questions sent by e-mail today.
The IMF hasn’t set a date for the continuation of talks, spokesman Gerry Rice said yesterday, Hungary’s state-run news service MTI reported.
“The market expects the negotiations to be continued in early September, which now seems less and less likely,” said Akos Kuti, a Budapest-based analyst at broker Equilor Befektetesi Zrt.
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