Bloomberg News

Hungarian Forward-Rate Bets on Tightening Rise for Fifth Day

November 29, 2011

Nov. 29 (Bloomberg) -- Traders increased bets for a fifth day that Hungary’s central bank will raise its benchmark interest rate today for the first time since January to defend the forint even as economic growth slows.

Forward-rate agreements fixing three-month interest in one month rose 3 basis points to 7.08 percent at 10:16 a.m. in Budapest. The three-month Budapest Interbank Offered Rate, to which the FRAs settle, traded at 6.76 percent at yesterday’s close. The forint depreciated 0.2 percent to 309.2 per euro, heading for a 2 percent loss in November, a fifth month of declines.

Hungary’s Magyar Nemzeti Bank will increase the two-week deposit rate to 6.5 percent from 6 percent today, according to the median estimate of 23 economists in a Bloomberg survey. The forint dropped to its weakest ever against the euro this month and government bond yields soared over 9 percent for the first time in two years as the country on Nov.24 lost its investment grade at Moody’s Investors Service after 15 years.

“The National Bank of Hungary is expected to hike rates at its meeting today and we look for a 25 to 50-basis point rate increase,” Michal Dybula, a Warsaw-based economist at BNP Paribas SA, and colleagues wrote in a research report today. “The risk is that anything less than a 50 basis point hike will lead to further forint weakness.” The central bank’s decision will be announced at 2 p.m. in Budapest.

The government sees next year’s economic growth at between 0.5 percent to 1 percent, compared with an earlier 1.5 percent growth target, Economy Minister Gyorgy Matolcsy said at a press conference last week. Policy makers must weigh that against the forint’s 14 percent slide against the euro in the second half, the worst performance worldwide.

While “the dismal growth performance would not require any tightening of monetary conditions”, that may have “secondary” importance for central bankers, Andras Oszlay, a Budapest-based economist at DZ Bank AG, wrote in a research report today.

--Editors: Ash Kumar, Peter Branton

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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