Forint Heads for Steepest 3-Day Slide in Year on Policy Outlook

The forint headed for the steepest three-day slide in more than a year on speculation a change of leadership at the central bank in March will make monetary easing more radical and weaken the currency.

Hungary’s currency depreciated 0.7 percent to 297.94 against the euro, its lowest since June 14, extending its drop in the past three sessions to 2.8 percent. Yields on the government’s benchmark 10-year bonds rose 3 basis points, or 0.03 percentage point, to 6.3 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, Economy Minister Gyorgy Matolcsy wrote in his weekly column in the Heti Valasz newspaper Jan. 10. 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.

“The market fears that Matolcsy might employ unorthodox monetary measures to support the economy, thereby hurting the Hungarian currency all the more,” Felix Herrmann, a Frankfurt-based analyst at DZ Bank AG, wrote in a research report today.

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, the highest in European Union.

The forint may weaken “well above 300” per euro if Matolcsy is appointed central bank president, Herrmann said.

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