Forint May Weaken on Hungary IMF Aid Delays, Citigroup Says

The forint, the world’s second-best performing currency against the euro this year, may weaken as Hungary faces delays in aid talks with the International Monetary Fund and the European Union, Citigroup Inc. said.

The forint appreciated less than 0.1 percent to 284.5 by 4:50 p.m. in Budapest, extending its gains in 2012 to 11 percent, the most worldwide after the Chilean peso. Yields on the government’s benchmark 10-year bonds rose three basis points, or 0.03 percentage point, to 7.375 percent.

Hungarian assets rallied as Prime Minister Viktor Orban’s government held a first round of talks with the IMF and EU in July after eight months of delays caused by a dispute over legislation threatening the independence of the central bank. A separate plan to tax central bank transactions approved in July risks complicating the negotiations on a credit line again, Citigroup said today.

“It is uncertain if talks will resume in September,” Eszter Gargyan, a Budapest-based economist at the bank, wrote in an e-mailed report today. “Investors will likely be disappointed about local news in the coming months,” she wrote, adding that Citigroup sees “risks skewed toward a weaker” forint against the euro.

There may be no progress toward the bailout in the short-term without market pressure, Gargyan wrote.

Hungary will continue aid talks in September, Zoltan Csefalvay, a state secretary at the Economy Ministry, said in an interview today in Krynica, southern Poland, without specifying a date.