Bloomberg News

Forint Drops Most in Week as German Auction Boosts Debt Concern

November 24, 2011

Nov. 23 (Bloomberg) -- The forint dropped the most in more than a week on concern a worsening euro-area crisis will reduce demand for Hungarian assets.

Hungary’s currency depreciated 1.6 percent to 309.82 per euro by 2:29 p.m. in Budapest, the biggest intraday decline since Nov. 14. The government’s benchmark 10-year bonds slumped, lifting the yield by 16 basis points to 8.624 percent.

Germany failed to find buyers for 35 percent of the 10-year bonds offered for sale today, while a purchasing manager index showed European services and manufacturing output declined for a third month. Fitch Ratings cut Hungary’s credit-rating outlook to negative on Nov. 11, saying a deteriorating outlook for exports and external financing threatened the country’s “small, open and relatively heavily indebted” economy.

“The weakening of the forint can be explained by the worsening international sentiment,” Jozsef Miro, a Budapest- based analyst at Erste Group Bank AG, and colleagues wrote in an e-mailed report today.

Hungary, with the biggest debt burden among eastern members of the European Union, has the lowest investment-grade credit ranking at Fitch, Standard & Poor’s and Moody’s Investors Service. S&P said this month that its rating may be cut this month.

The country, which is trying to reduce public debt from 81 percent of gross domestic product in 2010, last week sought assistance from the International Monetary Fund, helping the forint to rebound from its record low against the euro.

‘We Can Hope’

“At most we can hope there will be a quick deal with the IMF, which would lead to a rally in the forint even in a gloomy environment,” Commerzbank AG traders, including Peter Karsai in Budapest, wrote in an e-mail to clients today.

Hungary has started a probe against seven banks to investigate possible cartel activity on the household mortgage market, including OTP Bank Nyrt., the country’s biggest lender, and units of Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA, the Competition Authority said today in a statement. OTP slid 1.1 percent to 2,987 forint.

“In a European bank de-leveraging environment, the Hungarians don’t need to give foreign banks another reason to head for the exits,” Timothy Ash, chief economist for emerging markets at Royal Bank of Scotland Group Plc in London, wrote in an e-mail to clients, commenting on the cartel probe.

The lenders raised interest rates “significantly” on household mortgage loans and introduced new products with higher rates from Sept. 22, three days after Hungarian lawmakers approved a plan to force banks to swallow exchange rate risk on the early repayment of foreign currency mortgages, the Competition Authority said.

--Editors: Linda Shen, Stephen Kirkland

To contact the reporter on this story: Andras Gergely in Budapest at

To contact the editor responsible for this story: Gavin Serkin at

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