Forint firms on interbank market

A successful sale of three-month Treasury bills at the regular Tuesday auction helped prop up the Hungarian currency. Demand fell from the previous auction a week ago, the government, however, sold HUF 46 bln of the paper instead of the HUF 40 bln planned, and the average auction yield fell to 0.93% from 1.10% a week ago, although still increased a tad from the preceding dayʼs secondary market benchmark. 

The result suggests foreign investors may be returning after steep yield falls until autumn made them increasingly reluctant, but yields have increased since then, analysts say. The 1.13% average yield on the three-month tenor at the first auction of this year two weeks ago was the highest since last June.

Troubles of Polish assets in the wake of a sovereign downgrade by Standard & Poorʼs last Friday, and eurobond issuance plans for this year of the Hungarian government, publicized at a Euromoney conference in Vienna on Tuesday, also contributed to a firming of the forint.

Meanwhile, monetary policy expectations cup the upside for the forint.

Falling oil prices that increase the risk of disinflation will force the Hungarian central bank to cut its key rate this year even though it would like to avoid it, Raiffeisen Bank said in a note on Tuesday. The chances of Hungary cutting its policy rate to 1.00%, from the current record low 1.35%, by mid-2016 are higher than no cuts, the house added. In the meantime, the EUR/HUF will likely trade in the 310-320 range over the same period, Raiffeisen said.

However, although the National Bank of Hungary (MNB) might revise down its inflation forecast soon, there was no obvious reasons to think about changes in the interest rate, the central bankʼs managing director told the Vienna conference. The remark accelerated the gains of the forint late in the afternoon.

The forint traded at 288.87 to the dollar, up from final quotes at 289.60 on Monday. On Tuesday, it moved between 288.59 and 290.32, after a more than two-week high at 285.80 early Friday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

The forint was quoted at 287.80 to the Swiss franc, up from 288.10 late Monday. Its range on Tuesday was 287.28 to 288.39, after a more than six-week high at 286.33 last Friday intraday. Since a crash to an all-time low at 378.49 to the franc on January 15, 2015, when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26, 2015.