Hungarian forint gains to 8-month high as inflation accelerates

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Hungary's forint advanced to the highest in eight months versus the euro as inflation, the fastest in the European Union, quickened to a two-year peak last month.

Annual inflation was 6.3%, the highest since October 2004, compared with 5.9% in September. The forint has gained 3% in the past six months as Hungary's inflation rate has almost tripled, exerting pressure on the central bank to raise rates for a sixth time since June. „The inflation figures came out higher,” said Patrick Bengzon, an emerging-markets strategist at Jyske Bank A/S in Silkeborg, Denmark. „As the market is in the buying mood, the Hungarian forint will move higher.” The forint reached 258.09 against the euro and traded at 258.38 at 5:05 p.m. in Budapest, from 259.70 late yesterday.

The currency will probably reach 256 against the common currency by the end of the week, Bengzon said. Hungary's central bank, which last month lifted its benchmark interest rate to 8%, the highest level in the EU, may increase borrowing costs by another quarter point this month, according to four out of nine economists in a Bloomberg News survey. Five economists expect no change in rates. Central bank policy makers will next meet on November 20 to discuss interest rates. „We maintain our call for one more 25 basis points rate hike this year,” Nóra Szentiványi, Central Europe Economist at JPMorgan in London wrote in a note to clients. The increase was „most likely to be delivered at next Monday's council meeting.

Hungarian consumer prices rose as the government boosted taxes and cut subsidies for products such as drugs and natural gas, to trim the EU's widest budget deficit. The shortfall is expected to decline to 3.2% of national income in 2009 from 10.1% this year as part of preparations for adoption of the euro. The fiscal measures implemented by the government may lead to slower economic growth and, as a result, currency depreciation next year, said Ralph Sueppel, an emerging markets strategist at Bluecrest Capital Management Ltd. in London. „There is the price of fiscal tightening and it's slowing growth,” Sueppel said. „The forint may trade at 275 per euro in nine months.” Hungary's economy lost momentum in the Q3 as government measures to curb the budget deficit shackled corporate investment and consumer spending.

The economy grew 3.6% from the same period last year, the Budapest-based statistics office said yesterday, slowing from a 3.8% pace in the Q2 and matching the median estimate of nine economists in a Bloomberg survey. GDP rose 1% on the quarter. In other trading, the Polish zloty gained for a third consecutive session and traded at a six-month high at 3.809 per euro in Warsaw. The Czech koruna was little changed at 28.11 per euro in Prague. Czech industrial producer prices rose 1.9% in the year to October and were unchanged from September.

„The release contains no sign at all of inflation accelerating,” said Pavel Sobisek, the chief economist at HVB Bank Czech Republic AS in Prague, in a note to clients. „This is in line with our scenario of the central bank rate remaining on hold until January.” Czech central bank policy makers left their benchmark two-week repurchase rate at 2.5% in October, the lowest in the EU, after an increase in the previous month. (Bloomberg)

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