Forint Resists ECB Boost as Hungary Central Bank Mulls Rate Cuts

  • Currency weakens even as Polish zloty gains on ECB stimulus
  • Central banker says ready to take steps to spur inflation

The forint headed for a two-week low, ignoring new euro-area stimulus measures, as the National Bank of Hungary said more policy easing was needed to avoid stoking a further slowdown in inflation.

The currency weakened 0.5 percent to 310.83 per euro at 3:45 p.m. in Budapest as Marton Nagy, the deputy governor of the central bank, said policy makers were ready to deploy all measures to "significant risks" to achieving the 3 percent inflation target, including an interest-rate cut this year. That took precedence over the European Central Bank’s move to expand its bond purchase program and cut interest rates.

Without the comments from Nagy, "the ECB’s steps would have a more positive effect," said Pal Saaghy, a foreign-currency trader at the Equilor Befektetesi Zrt. in Budapest, which projects the forint will trade between 310-320 per euro until year-end. "Policy makers are still probably more focused on inflation than the forint, but are happy to hit two birds with one stone if rate cuts lead to a weaker currency."

The central banker reinforced a shift in policy away from a previous pledge to keep its benchmark rate on hold until the end of 2017, and comes as annual inflation slowed more than expected by analysts in February to 0.3 percent. The forint has rallied 1.5 percent in 2016, raising deflationary pressures.

Rate-Cut Bets

Mario Draghi unleashed his most audacious stimulus package yet on Thursday, by cutting the rate on cash parked overnight at the ECB by banks by 10 basis points to minus 0.4 percent and lowering its benchmark rate to zero. Bond purchases were increased to 80 billion euros ($88 billion) a month from 60 billion euros, and corporate bonds will now be eligible.

Derivatives traders increased bets for rate cuts to the most in a year with forward-rate agreements showing wagers for 35 basis points in reductions by September. The yield on Hungary’s 10-year government bond fell 13 basis points to 3.19 percent, the lowest in a year on a closing basis.

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