Forint down on weaker euro

An interview with Hungary's prime minister on Bloomberg in which he offered a deal to banks to "normalize" their "extraordinary" tax burden in 2016 or 2017 if banks increase lending has given an initial boost to the forint. Its impact, however, fizzled out soon as investors played down the words as too vague in details and dates, and dealers said the prime minister's comments might have primarily been aimed at giving the forint a boost which could help reduce Hungary's debt-to-GDP ratio to below end-2013 levels at year-end.

A weakening euro in dollar terms also played against the Hungarian currency although it stayed clear from the more than one-month lows hit last week.

Hungary is expected to keep its main rate unchanged at the current 2.1% record low on Tuesday, but the bank is also anticipated to revise its 2015 2.5% inflation forecast downward, and, as a result, it may indicate openness to resume the two-year rate-cutting cycle put on halt since August, analysts said on Monday.

Raiffeisen Bank expects Hungary to resume its rate-cutting cycle already in the first quarter of next year. In a note on Monday, Raiffeisen forecast that Hungary would cut its main rate to 1.8% in Q1 as inflation should continue to remain in negative territory.

The forint traded at 248.38 to the dollar, down from 247.34 late Friday and 247.29 late Sunday. On Monday, it moved between 247.06 and 248.72. It was quoted at 257.04 to the Swiss franc, up from 257.29 late Friday, but down from 256.63 late Sunday. Its range on Monday was 256.02, a four-day high, to 257.27.