Bloomberg News

Forint Gains 1st Day in 4 as Euro Leaders Agree on Budget Pact

December 10, 2011

Dec. 9 (Bloomberg) -- Hungary’s forint gained for the first day in four as euro area leaders agreed on a deal to prevent future debt runups and Prime Minister Viktor Orban asked lawmakers in Budapest to consider signing the pact.

The forint appreciated 0.8 percent to 303.5 per euro at per euro at 5:06 p.m. in Budapest, erasing its weekly loss. The BUX Index of stocks rose 0.9 percent to 17,036.03 led by a 3.4 percent rally in Mol Nyrt., the country’s biggest refiner. The cost of insuring against a default on Hungary’s government debt with credit-default swaps climbed two basis points to 580 basis points, according to data provider CMA.

European leaders expanded their crisis-fighting warchest and tightened anti-deficit rules, an accord hailed by European Central Bank President Mario Draghi as a “very good outcome.” The governments laid out the budget rules in a separate euro- area treaty after Britain balked at amending the pact covering all 27 European Union countries and Hungary asked for time to consult lawmakers.

“The deal creates a strict set of rules which would indeed boost credibility,” Gergely Tardos, head of research at OTP Bank Nyrt., Hungary’s biggest lender, said in a telephone interview. “However it’s more about preventing a future crisis than solving the region’s short-term problems.”

Hungary’s Parliament must decide on whether the country should join the EU fiscal pact because it’s a matter of “sovereignty” which the premier cannot decide alone, Orban told reporters in Brussels today.

The forint slumped as much as 1 percent earlier today before Orban clarified that he wasn’t rejecting the pact outright.

Rally Starting

“As soon as it became clear that he is far from directly opposed the rally started,” Tardos said.

Hungary, the European Union’s most indebted eastern member, last month lost its investment-grade credit rating at Moody’s Investors Service after seeking fresh assistance from the International Monetary Fund and the EU.

“Predictability is still weak in Hungarian economic policy making and this decision confirms that,” Zoltan Arokszallasi, a Budapest-based economist at Erste Group Bank AG, said in a telephone interview on Hungary not backing the European pact immediately.

Hungary needs to “completely redo” next year’s draft budget because of slowing growth, Orban said at a press briefing in Brussels, Index news website reported.

The yield on benchmark five-year government bonds fell 16 basis points to 8.698 percent.

Orban has confronted EU policy makers and investors since taking office last year by imposing extraordinary taxes on banking and other industries, nationalizing $14 billion in privately-managed pension assets and allowing the early repayment of foreign-currency loans at below-market rates.

European stocks climbed after Reuters reported that China will create a new investment vehicle to improve returns on its foreign-exchange reserves.

--With assistance from Stephen Kirkland in London. Editors: Linda Shen, Peter Branton

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Stephen Kirkland at skirkland@bloomberg.net


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