Forint Advances to Week-High on Matolcsy, Pares Monthly Decline

The forint appreciated to the highest level in more than a week after Economy Minister Gyorgy Matolcsy alleviated concern the Hungary’s government will press the new central bank chief to use new “unconventional” policy tools.

The currency strengthened 0.9 percent to 292.42 per euro by 4:39 p.m. in Budapest, a third day of gains that pared the depreciation in January to 0.4 percent. The country sold 65 billion forint ($302 million) in 12-month T-bills at an auction today, 15 billion forint more than planned. The average yield fell to 5.23 percent, the lowest since May 2010, according to data from the Debt Management Agency on Bloomberg.

The central bank should avoid “shock therapy” as it must be “more conservative than the government,” the Wall Street Journal reported Matolcsy saying in an interview published late yesterday. The minister has been named as the most likely successor to central bank President Andras Simor, who leaves office in March, by media including the Index news website. The forint tumbled as much as 3 percent after Matolcsy said last month the bank should “bravely” use unorthodox methods to boost the economy.

“Matolcsy was trying to calm forint investors,” Gergely Gabler, a Budapest-based analyst at broker Equilor Befektetesi Zrt., said in a research report today. “The forint’s recent underperformance was mainly due to the change of leadership at the central bank and the expected loose monetary policy.”

The forint has gained 1.9 percent since the central bank’s Monetary Council said on Jan. 29 the bank’s toolkit of unconventional methods should only be widened in “acute turmoil.” Policy makers cut the benchmark interest rate by 25 basis points to 5.5 percent on Jan. 29 in a sixth consecutive month of easing.

Budget Deficit

The forint benefited from European Commission President Jose Manuel Barroso statement yesterday that he welcomed Hungary’s steps to cut its budget deficit, Gabler said. Prime Minister Viktor Orban’s talks with Barroso increased the likelihood of the country exiting the European Union’s so-called Excessive Deficit Procedure for the first time since 2004, the analyst said.

The cost of insuring against default on Hungary’s debt with credit-default swaps fell seven basis points to 292 after hitting a two-month high yesterday. Yields on the government’s 10-year forint bonds fell 16 basis points, or 0.16 percentage point, to 6.35 percent.

Hungary will return to international debt markets by next month for the first time since May 2011 as efforts to obtain aid from the International Monetary Fund are ending, Orban said yesterday.

Matolcsy’s comments may boost the success of a Eurobond sale as well as support the forint, Imre Kerekgyarto and Karoly Bamli, Budapest-based traders at Commerzbank AG, wrote in an e-mailed note.

“Let’s hope the investor-friendly message wasn’t solely aimed at the purpose” of promoting the bond issuance, the Commerzbank traders wrote.

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