Forint Drops Third Day on Central Bank Currency Reserve Concern

The forint weakened for a third day after news website Nol reported Hungary’s government is considering using central bank currency reserves to help lenders provide relief to mortgage holders.

Prime Minister Viktor Orban’s Cabinet is considering converting overdue foreign-currency mortgages into forint, forgiving a part and letting banks deduct some of their losses from bank taxes, Nol said. The central bank may provide foreign currency for the conversion from its reserves, the website said.

The forint market is “ruled by fear” as traders speculate monetary policy will turn “unorthodox” after former economy minister Gyorgy Matolcsy took over as Magyar Nemzeti Bank president and will use the reserves to help mortgage borrowers, Zsolt Kondrat, a Budapest-based economist at Bayerische Landesbank’s MKB unit, wrote in a research report today.

The forint slid 0.2 percent to 299.23 per euro by 4:22 p.m. in Budapest after slumping to as low as 299.74, the weakest in five weeks. Yields on the government’s 10-year bonds fell two basis points, or 0.02 percentage point, to 6.375 percent.

The forint has lost 1.3 percent so far this month, the worst performance among 31 major currencies tracked by Bloomberg. Matolcsy, who Orban nominated on March 1 and who was sworn in today, used his powers as outgoing minister to rewrite the founding document of the bank to concentrate power in his own hands.

Hungary should be “very careful” with its foreign-currency reserves and the government must leave the central bank to determine their use, Orban told reporters in Warsaw today.

“Currency swings will be intensified until it crystallizes what policies we can expect from the national bank,” Karoly Bamli and Imre Kerekgyarto, Budapest-based traders at Commerzbank AG, wrote in an e-mail today.

Before it's here, it's on the Bloomberg Terminal.