Forint Slides to Seven-Month Low on Matolcsy Currency Comments

The forint slumped for a second day, touching a seven-month low, after Economy Minister Gyorgy Matolcsy said Hungary should avoid using currency strength to fight the European Union’s fastest inflation.

Hungary’s currency depreciated as much as 1.4 percent to 297.27 against the euro, the weakest since June 14. It was down 1 percent to 296 at 4:24 p.m. in Budapest. Yields on the government’s benchmark 10-year bonds rose 17 basis points, or 0.17 percentage point, to 6.28 percent, the highest since Dec. 19, according to data compiled by Bloomberg.

The country must reject “traditional” economic models including policies of previous governments that kept the forint strong to control inflation and allowed the budget deficit to widen, Matolcsy wrote in his weekly column in the Heti Valasz newspaper yesterday. The minister has been named a potential successor to central bank President Andras Simor, whose term ends in March, according to media reports including the Index news website.

“These comments indicate that the new central bank president will be tasked with finding new ways of monetary easing, which leads to forint depreciation,” Andrej Taraczky, head of foreign-currency trading at Buda-Cash Brokerhaz Zrt. in Budapest, said by telephone, adding that today’s slump was caused by Matolcsy’s comments.

‘Unorthodox Tools’

Hungary’s central bank, which cut interest rates for five consecutive months through December, should “bravely use unorthodox tools” to support economic growth, Matolcsy said in an interview with Budapest-based HirTV last month. The country’s inflation rate stood at 5.2 percent in November.

“If on top of that he says they want an outright weaker forint, that will determine the direction of trading,” Taraczky said.

The Debt Management Agency raised 50 percent more debt than planned at the first bond auction of 2013 yesterday as 10-year yields fell to the lowest in seven years on expectation of further monetary easing in Hungary.

The European Central Bank yesterday held off from further measures to fight recession, keeping its benchmark interest rate at 0.75 percent in a unanimous decision a month after calls for a cut from some of its Governing Council.

The expected narrowing in Hungary’s interest premium over the euro area caused additional losses in the forint, Zoltan Arokszallasi, a Budapest-based economist at Erste Group Bank AG, wrote in a research report today.

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