Bloomberg News

Forint Slumps on Inflation After Biggest 4-Day Gain in 10 Months

October 11, 2011

Oct. 11 (Bloomberg) -- The forint weakened after posting the biggest four-day gain in 10 months as slower-than-expected inflation led investors to cut bets the central bank will raise borrowing costs.

The Hungarian currency depreciated 0.8 percent to 294.7 by 9:52 a.m. Budapest time, after rallying 2.5 percent in the four days through yesterday. Consumer prices rose 3.6 percent from a year earlier, the same annual rate as in August, the statistics office in Budapest said today. The median estimate of 18 analysts surveyed by Bloomberg was for a rate of 3.8 percent.

“The Hungarian forint is slightly weaker after the release, as the data highlights the central bank’s dilemma, i.e. difficult to cut interest rates as long as risk perception of Hungary is highly negative,” Elisabeth Andreew, a Copenhagen- based strategist at Nordea Bank AB, wrote in a research report.

Hungarian policy makers last month kept the benchmark interest rate unchanged at 6 percent as the majority of policy makers considered that the deteriorating global risk environment is preventing policy makers from cutting the interest rate even as the inflation outlook may justify such a move, according to minutes of the meeting published last week.

Forward-rate agreements fixing three-month interest in one month rose four basis points, or 0.04 percentage point, to 6.33 percent, bringing the spread against the three-month Budapest interbank offered rate to 21 basis points, compared with 39 basis points a week ago. FRA’s are used to hedge against or bet on future funding-cost changes.

The benchmark BUX index of stocks rose 1 percent to 16,982.3.

--Editors: Linda Shen, Peter Branton

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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