Oct. 26 (Bloomberg) -- Hungary’s option premiums show the forint may weaken in the coming weeks after the central bank failed to signal higher interest rates to support the currency yesterday, according to Commerzbank AG.
The forint weakened 0.3 percent to 298.6 per euro by 10:40 a.m. in Budapest in a second day of losses. The so-called 25- delta risk reversal rate was at minus 6 percent today, matching the level on Oct. 5, which was the most bearish since June 2010. A negative rate signals greater demand for forint puts relative to calls. Calls grant the right to purchase a currency, while puts allow for sales.
The central bank yesterday kept the benchmark interest rate unchanged at 6 percent for a ninth month, saying the European debt crisis raised the country’s borrowing and risk costs and pressured the forint, justifying a “wait-and see” approach.
“This feeble central bank statement disappointed markets yesterday,” and central bank President Andras Simor didn’t mention the “possibly required hammer blow” of raising rates by as much as 300 basis points at his press conference, Carolin Hecht, a Frankfurt-based strategist at Commerzbank, wrote in a research report today. “Risk reversals against the euro and dollar remained at extremely high levels and implied continued weaker forint exchange rates over the coming weeks.”
Pressure on the forint may persist and “significant” weakening beyond 300 per euro would trigger central bank action, possibly including monetary tightening, Societe Generale SA said.
“This is clearly not an easy option given the weakness of the economy but it may become necessary if financial stability is threatened,” Gaelle Blanchard, a London-based Societe Generale analyst, and colleagues wrote in a report today.
The forint has declined 10 percent against the euro and 14 percent against the dollar in the last three months, the biggest loss among European currencies.
“The National Bank of Hungary is still far away from hiking rates at current forint levels,” Bartosz Pawlowski, a London-based strategist at BNP Paribas SA, wrote in a note to clients today.
--Editors: Linda Shen, Chris Peterson
To contact the reporter on this story: Andras Gergely in Budapest at firstname.lastname@example.org
To contact the editor responsible for this story: Gavin Serkin at email@example.com