Forint Rallies Most in Six Months This Week on Central Bank, PMI

The forint appreciated for a fourth day, capping the biggest weekly advance in more than six months, as data showed manufacturing returned to expansion and the government eased concern it will influence monetary policy.

The currency strengthened 0.4 percent to 291.58 per euro by 4:37 p.m. in Budapest, extending its advance this week to 2 percent. That was the best performance among more than 100 currencies tracked by Bloomberg and the biggest rally in the forint since the five days through June 22. Yields on the government’s 10-year forint bonds rose one basis point, or 0.01 percentage point, to 6.4 percent.

The forint rallied after the central bank’s rate-setting Monetary Council and Economy Minister Gyorgy Matolcsy each urged caution this week on expanding the Magyar Nemzeti Bank’s set of unconventional tools for boosting economic growth. The currency extended gains today after a purchasing manager index for Hungarian manufacturing rose to a 10-month high.

“Investors have put faith in Minister Matolcsy’s comments promising conservative monetary policy, which has shown in the forint’s performance,” Gergely Tardos and Levente Papa, Budapest-based analysts at OTP Bank Nyrt., Hungary’s largest lender, wrote in a research report today.

Matolcsy has been named as the most probable 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 in December the bank should “bravely” use unorthodox methods to boost the economy.

Matolcsy Story

“The pricing out of the ’Matolcsy story’ from the forint is continuing, clearly breaking the weakening trend started in December,” Zsolt Kondrat, a Budapest-based analyst at Bayerische Landesbank’s MKB unit, wrote in a research report today.

The central bank’s Monetary Council said on Jan. 29 that 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. The central bank should avoid “shock therapy,” the Wall Street Journal reported Matolcsy as saying in an interview the next day.

The transition of leadership at the central bank will be “smooth” and the government will respect the monetary authority’s mandate set in law, Prime Minister Viktor Orban said on MR1 radio today.

The forint extended gains today after data showed U.S. payrolls and manufacturing expanded, boosting demand for riskier assets.

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