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Sept. 6 (Bloomberg) -- Hungary’s forint jumped as much as 9.9 percent against the Swiss franc, the most on record, and bonds rallied after Switzerland’s central bank imposed a ceiling on the franc’s exchange rate.
The forint surged to as strong as 225.784 per franc for the biggest intraday gain since at least June 1993. It traded 8.2 percent stronger at 230.145 at 4:31 p.m. in Budapest, paring its loss this year to 3.3 percent. The forint rose 0.5 percent against the euro to 276.85. The yield on bonds due in June 2022 dropped by 33 basis points to 7.08 percent, the lowest since June. OTP Bank Nyrt., Hungary’s largest lender, gained 4.1 percent, snapping a five-day losing streak, on speculation losses on foreign-currency loans will fall.
Hungarian homeowners who bought property with foreign- currency loans had faced a surge in costs as the forint weakened against the franc, raising the potential for defaults. Sixty- four percent of Hungarian household mortgages and 61 percent of Hungarian local council debt are denominated in foreign currencies, most of them in the franc, according to central bank data.
“I see it as a breakthrough,” Gabor Orban, who helps manage $2.5 billion in central and eastern European debt at Aegon Fund Management in Budapest, said of the impact of the SNB move on Hungary. “It’s very good for OTP, for consumption, very good for value-added-tax receipts,” Orban said, adding that the Swiss decision also benefited Hungarian bonds because of its impact on the budget.
Hungary’s Economy Minister Gyorgy Matolcsy planned to meet central bank President Andras Simor to discuss ways to reduce the burden on borrowers who took out loans in Swiss francs, the government said yesterday.
“The Swiss franc peg to the euro will change a lot the dynamics on Hungarian assets, at least in the short term,” Luis Costa, a strategist at Citigroup Inc. in London, wrote in a research report. “It destroys one catalyst of weakness in the already battered Hungarian growth story.”
The government will cut its public debt to 73 percent of gross domestic product this year from the current 77 percent, Hungarian Prime Minister Viktor Orban told reporters today. The government revised its 2011 economic growth to about 2 percent from 3.1 percent, Orban said Aug. 17.
The Swiss central bank is “aiming for a substantial and sustained weakening of the franc,” it said in an e-mailed statement today. “The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”
OTP competes mostly with units of international banks, including Raiffeisen Bank International AG, UniCredit SpA and Bayerische Landesbank, and in the mortgage market with Budapest- based Foldhitel es Jelzalogbank Nyrt., or FHB.
--Editors: Linda Shen, Alex Nicholson
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