Forint falls versus euro, stable against dollar

MNB

The forint was trading at 313.11 to the euro late Tuesday on the interbank forex market, down from final quotes at 312.41 on Monday. At 312.32 to the euro early Tuesday, the forint moved between 312.15 and 313,87, a four-day low, after a twelve-day high at 310.69 late Monday.

The Hungarian currency fared stable against the dollar on Tuesday until late afternoon when data on a widening US trade deficit accelerated the euroʼs gains versus the dollar. The forint also strengthened against the dollar, but lost out to the soaring euro.

Hungarian sovereigns, especially at the shorter end of the curve, were out of vogue on Tuesday while the government sold less three-month Treasury bills than planned on low demand with slightly rising yield.

Hungaryʼs central bank announced on Tuesday the launch of a uniform 2% mandatory reserve ratio for commercial banks to replace the current optional ratios between 2% to 5% as of December 1 in another step among several since last year in its policy to squeeze more funds out of central bank instruments into government paper. This policy parallels chronically low corporate credit demand because growth in the real economy is tepid if adjusted to discount the effect of EU funds, a factor also shepherding banks into government debt. The resulting higher demand for state debt may be in line with the governmentʼs self-financing zeal, and lighten the stateʼs debt service burden, but should add to weighs on banksʼ profitability, which is a forint negative, together with smaller demand of sovereign debt from non-resident investors.

The latest measure is projected to drive about HUF 500 bln out of banksʼ reserves at the central bank.

Analystsʼ calculations that additional current forint payment obligations of the government, to the tune of about HUF 300 bln, on EU funds between 2007-13 because of the depreciation of the forint also weighed on the Hungarian currency, as such outflows might deepen the budget deficit even further. Hungaryʼs government asked the EU to discount extra expenditure incurred because of the refugee crisis from deficit-to-GDP calculations, but acceptance in Brussels is far from certain.

The forint traded at 277.93 to the dollar, up from 279.30 in final quotes on Monday. On Tuesday, it moved between 277.93 and 279.91, after an eleven-day high at 275.87 late last Friday.

It was quoted at 286.95 to the Swiss franc, down from 286.22 late Monday. Its range on Tuesday was 285.75 to 287.73, a five-day low, after an eleven-day high at 284.25 late Monday. Since its crash to an all-time low at 378.49 to the franc on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.

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