Nov. 15 (Bloomberg) -- The forint strengthened, rebounding from an all-time low against the euro, as Hungary’s central bank said it may “gradually” tighten monetary conditions to defend the currency and the economy grew faster than forecast.
The forint appreciated 0.6 percent to 314.83 per euro by 3:31 p.m. in Budapest, paring its loss in the second half of 2011 to 16 percent. Hungary’s currency dropped to as weak as 317.92 yesterday after Standard & Poor’s and Fitch Ratings said they may remove the country’s investment-grade credit ranking.
Policy makers regard the depreciation of the forint as unjustified by the Hungarian economy’s fundamentals, the central bank said today in a statement after statistical data showed the country’s economy expanded faster than expected in the third quarter. The bank may still need to raise interest rates to shield the forint from a sustained increase in risk aversion stemming from the euro area’s debt crisis, it said.
“They will touch interest rates if the forint’s weakness is sustained over a longer period,” Gergely Suppan, an economist at Takarekbank Zrt., said in a phone interview from Budapest. The central bank pointing to possible rate increases may help “blunt” the forint’s weakening, Suppan said.
The forint has a “quite high” chance of further weakening although the currency has seen “most” of its slump already, Ronald Schneider, who helps manage about $1 billion in emerging- market debt as a Vienna-based fund manager at Raiffeisen Kapitalanlage GmbH, said at an event at the Austrian lender’s Budapest offices today.
Investors are betting borrowing costs will increase to 7 percent or more by February from 6 percent at present. Forward- rate agreements fixing interest costs in three months soared for a second day, increasing 30 basis points this week to 7.44 percent, a two-year high. The contracts traded 1.11 percentage point above the three-month Budapest Interbank Offered Rate to which they settle.
Hungary’s gross domestic product rose 1.4 percent from a year earlier, compared with 1.5 percent in the second quarter, the Budapest-based statistics office said in a preliminary report today. The median estimate of 15 economists in a Bloomberg survey was 0.8 percent.
“The better third-quarter real GDP print has provided some much needed support for the beleaguered forint,” Timothy Ash, a London-based strategist at Royal Bank of Scotland Group Plc, wrote in a research report.
The government’s benchmark 3-year bonds strengthened, cutting the yield 10 basis points to 8.38 percent, after a 56 basis point jump yesterday.
--Editors: Stephen Kirkland, Peter Branton
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