Forint Heads for Longest Slump Since 2011 as S&P Cuts Outlook
The forint headed for the longest series of weekly declines in almost 18 months and bond yields rose as Standard & Poor’s cut the outlook on Hungary’s junk- grade credit rating to negative from stable.
The currency fell for a second day after S&P said the government’s takeover of central bank management and changes to the constitution may harm policy makers’ credibility, according to a statement late yesterday. The company kept the rating at BB, two notches below investment grade. S&P’s criticism may be replicated by other rating companies, said Luis Costa, a London- based strategist at Citigroup Inc.
“I consider this change of outlook as the opening of one more important dimension in Hungarian risk,” Costa wrote in an e-mail today. “We still favor a higher euro-forint rate.”
The currency of Hungary, the most indebted nation in the east of the European Union, slid 0.3 percent to 307.74 per euro by 10:44 a.m. in Budapest, extending its decline in the past five days to 0.9 percent. The forint is set for a sixth week of depreciation, the longest such streak since October 2011. Yields on the government’s dollar-denominated bonds due in 2023 rose three basis points to 5.9 percent, the highest level since the securities were first sold on Feb. 12.
Moody’s Investors Service and Fitch Ratings both rate Hungary one step below investment grade, with negative and stable outlooks, respectively.
Hungarian Prime Minister Viktor Orban used his party’s two- thirds majority in parliament to amend the constitution last week, overturning previous court decisions and limiting legal interpretations by judges. The forint has also weakened since Orban named former economy minister Gyorgy Matolcsy as central- bank president on March 1. Matolcsy, who in December advocated the use of “unorthodox” monetary policies to boost growth, started his tenure by taking away powers from two of his deputies appointed under a previous government and rewriting the bank’s founding document to consolidate authority in his hands.
The forint pared losses today after Magyar Hirlap reported that the government opposes weakening the forint, citing an interview with Peter Szijjarto, a state secretary at the prime minister’s office.
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