Hungary Bonds Extend Third Weekly Rally on CPI: Budapest Mover

Hungary’s bonds capped a third week of gains on speculation the central bank will extend eight months of rate cuts beyond a record low after inflation slumped to a 39-year low. The forint advanced.

Basic price indicators monitored by monetary policy makers came in at 1.7 percent in March, the Magyar Nemzeti Bank said on its website today. The headline consumer price index rose 2.2 percent in March, the least since 1974, the statistics office said yesterday. Yields on 10-year bonds slipped 11 basis points, or 0.11 percentage point, to an eight-year low of 5.68 percent at 3 p.m. in Budapest, extending the decline in the past three weeks to 90 basis points.

The Magyar Nemzeti Bank, which cut rates to 5 percent last month, may continue easing if price pressures remain moderate and markets stabilize, minutes of the March meeting showed this week. Policy makers will probably cut rates to “well below” 4.5 percent this year, Mihaly Patai, the chairman of the Hungarian Banking Association, who held talks with central bank officials this week, said in an interview with MR1 radio.

Traders are pricing in “massive” easing, with the base rate seen falling as low as 3.75 percent in 2013, Levente Blaho and Adam Keszeg, Budapest-based analysts at Raiffeisen Bank International AG, wrote in a research report today.

Nine-month forward-rate agreements, derivatives used to wager on interest rates, traded at 3.70 percent, within two basis points of a record low. The FRAs traded 119 basis points below the Budapest Interbank Offered Rate.

The forint rose 0.5 percent to 294.88 per euro, the strongest level since March 4 and extending this month’s gain to 3.2 percent, the best performance among more than 100 currencies tracked by Bloomberg.

Bank Measures

The forint and Hungary’s bonds have rallied since the central bank said on April 4 that it will provide cheap funds to commercial banks to help boost lending and move the country out of recession. Hungarian assets have risen as Gyorgy Matolcsy, who took over as the bank’s president last month, didn’t resort to unconventional measures some analysts had expected, said Pal Saaghy, a currency trader at broker Equilor Befektetesi Zrt.

“The market priced out the more extreme or unorthodox steps which investors saw coming from the central bank,” Saaghy said by phone today.

The cost of insuring against default on Hungary’s debt with credit-default swaps fell less than one basis point to 303, the lowest on a closing basis since February.

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