Forint Drops Most in Week as Goldman Sees Slump on Policy Change

The forint weakened the most in almost a week as Goldman Sachs Group Inc. forecast a slump in the currency on concern a change in leadership at the central bank may bring monetary loosening via unconventional methods.

The forint depreciated 0.6 percent to 294.76 per euro by 4:31 p.m. in Budapest, the biggest drop since Jan. 16. Yields on the government’s benchmark 10-year local-currency bonds rose eight basis points, or 0.08 percentage point, to 6.41 percent, the highest in a month.

The forint has slumped 1.7 percent in the past month on the expectation that the new president due to take over at Hungary’s central bank in March will ease monetary policy in a non-traditional way. Goldman Sachs cited such a threat from the Magyar Nemzeti Bank while revising its forecast for the forint to 292, 303 and 303 in 3, 6, and 12 months, from 282, 285, and 288, respectively. Raiffeisen Bank International AG and broker Equilor Befektetesi Zrt. also projected a forint slump, citing the same reason.

“The actual shift to more accommodative policies is likely to lead to a sell-off,” Goldman analysts Magdalena Polan and Themistoklis Fiotakis wrote in a report yesterday. The currency’s decline was “driven primarily by increasing market concerns over the succession in the leadership of the National Bank of Hungary and policy statements indicating government’s higher tolerance for weaker forint.”

The government may nominate Economy Minister Gyorgy Matolcsy to replace central bank President Andras Simor in March, reported late yesterday. Matolcsy has urged the bank to “bravely use unorthodox tools” and follow the European Central Bank in providing stimulus for the economy.

‘Prolonged Depreciation’

The forint may weaken “well beyond 300” in the first half of 2013 because of the expected shift in monetary policy, Budapest-based broker Equilor said in a report today. A subsequent change in government rhetoric may then bring the forint back to 290 by year-end, Equilor said.

“The government’s tolerance for prolonged depreciation is still limited,” the Goldman analysts wrote.

The government targets a forint rate of 285 per euro as substantial depreciation would be dangerous, Mihaly Varga, Hungary’s chief aid negotiator, said Jan. 20. Varga’s comments helped recoup forint losses after Matolcsy said Jan. 10 he opposes strengthening the forint to fight inflation.

The forint appreciated 8.1 percent against the euro and 10 percent to the dollar last year, the biggest advance among more 25 emerging-market currencies tracked by Bloomberg after the Polish zloty.


Hungary, which requested International Monetary Fund aid in November 2011, stands little chance of obtaining a bailout as views on the type of bailout and Hungary’s growth prospects differ too much between the IMF and the Cabinet, Varga said in an M1 television interview today.

The forint may weaken to 300 per euro by March, Wolfgang Ernst, a Vienna-based analyst at Raiffeisen, wrote in a research report today.

Ernst cited the unresolved question of the central bank succession, the “unlikely” success in IMF talks, Hungary’s “bleak” economic outlook and last week’s warning from Fitch Ratings that it’s not planning to upgrade the country to investment grade in the near future.