Forint Weakens as Hungary Rate Cut Bets Boost Treasury Bill Sale

The forint weakened for a second day and Hungary sold more T-bills than planned at an auction today on speculation the central bank will further cut interest rates.

Hungary’s currency depreciated as much as 0.7 percent and traded 0.3 percent lower at 291.2 per euro by 5 p.m. in Budapest. The Debt Management Agency sold 60 billion forint ($268 million) in six-week bills, 10 billion forint above target, at an average yield of 5.66 percent. That compares with a rate of 6.21 percent at the last auction of the same maturity on Nov. 12, the agency’s data published on Bloomberg show.

The Magyar Nemzeti Bank, which cut its benchmark rate by a cumulative 1.25 percentage points in five monthly meetings last year to 5.75 percent, will trim at least another 100 basis points this year, derivative prices show. Government-imposed energy price cuts this year will provide rate-setters with more rationale for easing, according to Eszter Gargyan, a Budapest-based economist at Citigroup Inc.

“The benchmark rate will probably be cut at the next few Monetary Council meetings,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG, wrote in a research report today.

The government’s expected appointment in March of a new central bank president who will use “unconventional” methods to aid economic growth may also hurt the forint, Arokszallasi said.

The government, which is forcing energy suppliers to reduce prices for households by 10 percent, is considering further cuts, according to Janos Fonagy, state secretary at the Development Ministry, Nepszabadsag reported Jan. 5.

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