Bloomberg News

Forint Extends Biggest 5-Day Rally Since 2009 on Aid Prospects

January 24, 2012

Jan. 23 (Bloomberg) -- The forint had its biggest five-day gain against the euro since April 2009 on speculation Prime Minister Viktor Orban will take steps to restart talks on an international bailout.

The forint appreciated as much as 1.4 percent and traded 1.3 percent higher at 299.85 by 4:39 p.m. in Budapest, the strongest level on a closing basis since Dec. 6 and set for a 4.3 percent gain since Jan. 16. The cost of insuring against default on Hungary’s debt with credit-default swaps fell to 597 basis points from 610 on Jan. 20 and compared with a record high of 735 basis points on Jan. 5. A basis point is one hundredth of a percentage point.

Orban is trying to revive bailout negotiations with the European Union and the International Monetary Fund after discussions broke down in December over his refusal to change laws that both organizations said may weaken monetary-policy independence. Orban offered to change disputed legislation after the EU threatened a lawsuit against Hungary for encroaching on the central bank’s independence and political meddling with the judiciary and the data-protection authority.

“Positive sentiment towards the forint continues on more supportive comments about Hungary’s prospects of getting an agreement with the IMF,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, and colleagues wrote in an e-mailed report today.

Investors should buy the forint and sell the Polish zloty, Simon Quijano-Evans, a London-based economist at ING, said in an e-mailed report today, citing the planned moves by Orban on the central bank law. The forint appreciated 0.5 percent to 70.06 per zloty.

‘Flexible Solutions’

Hungary may obtain a loan from the IMF and the EU by March or April, Mihaly Varga, Orban’s chief of staff, told TV2 in an interview today. Orban will propose “flexible solutions” to European Commission President Jose Manuel Barroso tomorrow in Brussels to the EU executive’s objections to Hungarian laws, including on the central bank, which have held up talks on a bailout, Varga said.

“Since a Hungarian government official for the first time gave a concrete outlook on the time schedule for negotiations with the IMF, Hungarian assets should react positively today,” Kata Baller, a Budapest-based analyst at DZ Bank AG, wrote in a research report.

Orban needs to follow up his pledges to respect the independence of the central bank with “concrete steps” to restart aid negotiations, Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in a research report, adding that the market “tends to be overoptimistic regarding Hungary.”

‘Drastic’

“The communication strategy is working and until this has been disproved the forint will probably be able to defend its position,” Hecht said.

Investors should sell the forint against the zloty or the Romanian leu as Hungary faces further demands from the EU in return for reviving talks on financial assistance, Guillaume Salomon, a London-based strategist at Societe Generale SA, said in an e-mailed report today, adding that the new conditions will concern “safeguarding the rule of law.”

“Conditions attached to any aid will be drastic and will touch on many recent laws and measures introduced by the government,” Salomon wrote.

--Editors: Linda Shen, Ash Kumar

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

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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