Forint advances on expectations Central Bank will raise rates

Analysis

The Hungarian forint gained as investors expected the central bank to increase the main interest rate, already the highest in the European Union.

The currency may log a fourth consecutive week of gains after a government report earlier this week showed that wages soared in August, contributing to inflationary pressures. Rate setters may lift borrowing costs to as much as 8.25% at next week's monetary policy meeting, a Bloomberg survey shows. The forint gained on expectations that the policy meeting would show a “hawkish central bank, due to local inflation developments,” said Barbara Nestor, an emerging-markets strategist at Commerzbank AG in London. “Very positive conditions for emerging-markets currencies” also support the forint, she said. Against the euro, the forint gained 0.5%, the biggest advance in a week, and traded at 264.33 at 11:15 a.m. in Budapest. It may advance to 264.00 per euro if the bank decides to tighten monetary conditions next week, Nestor said.

Hungary's average wages rose 10.7%, the most in 18 months, in the year to August compared with 8.6% the previous month, a report on October 17 showed. The monetary policy council will this month lift the main interest rate by 25 basis points to 8%, said nine out of 17 economists surveyed by Bloomberg between October 9 and October 18. Six expected an increase of half a percentage point and two said there will be no change in borrowing costs. The U.S. Federal Reserve has kept its target overnight lending rate between banks at 5.25% since June. Euro region borrowing costs now stand at 3.25%. (Bloomberg)

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