Bloomberg News

Forint Weakens First Day in Three After Central Bank Holds Rates

October 25, 2011

Oct. 25 (Bloomberg) -- The forint weakened the first day in three after Hungary’s central bank kept the benchmark rate unchanged for a ninth month and said it prefers a “wait-and- see” policy stance.

Hungary’s currency depreciated 0.8 percent to 297.6 per euro by 3:15 p.m. in Budapest. Forward-rate agreements fixing three-month interest costs in six months fell 5 basis points to 6.595 percent, a third day of declines. The FRA’s spread against the Budapest Interbank Offered Rate narrowed to 48 basis points from 93 basis points on Oct. 4, still pointing to tighter monetary conditions.

Central banks across eastern Europe have been weighing faltering growth prospects against weaker currencies. The Magyar Nemzeti Bank “overwhelmingly” voted to keep the two-week deposit rate at 6 percent, matching the projection of all 20 economists surveyed by Bloomberg, after also considering raising the rate to 6.25 percent, Central bank President Andras Simor told reporters.

“There is a strong duality in the rate outlook,” Zoltan Arokszallasi, a Budapest-based economist at Erste Group Bank AG, and colleages wrote in a research report after the rate decision. “While the real economy would need a lower base rate, due to the still muted domestic demand, financial stability reasons currently do not allow easing the base rate.”

The central bank last week cut its growth forecast for next year to 0.6 percent from 1 percent, compared with the government’s 1.5 percent projection.

--Editors: Linda Shen, Alex Nicholson

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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