Forint Extends Decline to 5-Week Low on Central Bank Takeover

The forint retreated for a second day, reaching its lowest against the euro in more than five weeks on speculation Hungary’s government will use expanded powers at the central bank to deplete foreign-currency reserves.

The currency has led losses in emerging-market peers this week after former economy minister Gyorgy Matolcsy began his six-year tenure as Magyar Nemzeti Bank president by rewriting the central bank’s founding document to concentrate power in his hands. Hungary will debate using the reserves for stimulus measures or to help foreign-currency mortgage holders, Mihaly Varga, who is taking over from Matolcsy in the government, told TV2 in an interview yesterday.

“These are exactly the type of policies that could derail what has been a fairly good ride for forint assets over the last nine months or so,” Benoit Anne, London-based head of emerging-market strategy at Societe Generale SA, wrote in a research report today.

The forint depreciated 0.3 percent to 299.41 per euro by 11:47 a.m. in Budapest, extending its drop in the past two days to 1.6 percent. The forint appreciated 8.1 percent in 2012, the second-best performance among more than 100 currencies tracked by Bloomberg. The Debt Management Agency raised 60 billion forint ($262 million) in three-month Treasury bills at an auction today. The average yield was 4.93 percent, the lowest since May 2010, according to data from the agency on Bloomberg.

DZ Bank AG expects the forint “to remain under pressure and even see chances for euro-forint to break above the 300 threshold in the coming days,” Gabor Malatinszky, a Budapest-based analyst at the bank, wrote in an e-mailed report.

Rate Cuts

Matolcsy stripped central bank vice presidents, including two current ones who were appointed by his predecessor, of the right to independently act on behalf of the bank, according to the document, which Matolcsy signed on Feb. 28 as Economy Minister and which entered into force yesterday.

Policy makers delivered seven consecutive quarter-point rate cuts, bringing the benchmark to 5.25 percent, matching the lowest on record. Outgoing central bank president Andras Simor and his two deputies opposed the easing.

Yields on Hungary’s five-year forint-denominated bonds rose four basis points, or 0.04 percentage point, to 5.71 percent. The yield fell to 5.6 percent on Feb. 13, the lowest in more than seven years.

OTP Bank Nyrt., Hungary’s largest lender, expects a further “moderate” drop in yields as the market prices in more easing, Gergely Tardos and Levente Papa, Budapest-based analysts at the bank, wrote in a report today.