Bloomberg News

Hungary’s Central Bank May Bolster Forint, Citigroup Says

September 30, 2011

(Updates with Polish background, HSBC, Commerzbank comment from fourth paragraph.)

Sept. 30 (Bloomberg) -- Hungary’s central bank may follow Poland’s example and act to stem the weakening of the forint, according to Citigroup Inc.

The Hungarian currency firmed 0.2 percent to 292.3 per euro at 11:15 a.m. in Budapest, paring its quarterly loss to 9 percent, the worst performance since the three months through March, 2009.

“Central bank interventionist rhetoric may increase as the foreign currency pressure persists,” analysts at Citigroup, including Luis Costa in London, wrote in a research report dated yesterday. “The significant improvement in the country’s foreign-exchange reserve position leaves the National Bank of Hungary with good ammunition to step in the spot markets going down the road.”

Poland’s central bank last week bought the zloty on the market for the first time since the currency was allowed to trade freely in April 2000. The Hungarian central bank will act to prop up the forint if it drops beyond “the psychologically important level” of 300 per euro, Murat Toprak, a London-based currency strategist HSBC Holdings Plc said two days ago.

Hungary’s foreign currency reserves stood at 34.7 billion euros ($47 billion) at the end of August, according to central bank data.

Budget Gaps

The forint has depreciated because of growing gaps in the Hungarian budget and there is scope for the currency to weaken past 295 per euro, the level reached on Sept. 22, which was the weakest since April 2009, according to Commerzbank AG.

“The Hungarian fiscal policy remains an underlying negative factor for the forint,” Carolin Hecht, a strategist at Commerzbank in Frankfurt, wrote in a research report today.

Hecht referred to comments yesterday by Mihaly Varga, chief of staff to Prime Minister Viktor Orban, that Hungary is far behind on its three-year plan to cut spending.

Hecht also cited a call from the European Commission yesterday for Hungary to end its special tax on telecommunications operators, which the government has relied on to reduce the budget deficit to below the European Union’s limit of 3 percent of gross domestic product.

--Editors: James Kraus, Alan Purkiss

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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