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Forint falls with more easing around the corner

MNB

The forint was trading at 314.35 to the euro late Wednesday on the interbank forex market, down from final quotes at 313.32 on Tuesday. At 312.95 to the euro early Wednesday, the forint moved between 312.88 and 315.02, a nearly five-week low, after a one-week high at 308.95 late last Friday. It lost 1.3% in the last three days through Wednesday.

The Hungarian currency extended losses after the central bank announced new incentives for banks to increase corporate lending on Tuesday, and its deputy governor said on Wednesday the bank could help market interest rates fall further with more unorthodox measures.

The forint fell more against the dollar than versus the euro as the euro lost out, too, to the dollar on Wednesday.

Although the deputy governor suggested base rate cuts tend to be less important in monetary policy, he added there was no need to worry about exchange rate stability risks while the forex proportion of state debt sinks.

But how the central bank may reconcile the now parallel aims of driving tax-battered domestic banksʼ funds both into more corporate lending and into more purchases of government debt in the framework of its recent "self-financing" policy was not immediately clear, analysts said on Wednesday.

The Hungarian central bank would also like to flatten government securities yields as it still consider long-term yields too high, and it also would like to push short-term rates lower, the deputy head said on Wednesday.

At auctions as well as in the secondary market Hungarian yields have tended up for more than a month now, reflecting investorsʼ perception that with measures shepherding banks into government bonds the central bank overshot its target in terms of driving yields too low relative to Hungaryʼs junk-rated status, analysts add.

New measures announced on Tuesday by the central bank intended to boost corporate lending included a preferential central bank deposit facility for commercial banks, which could potentially lure funds back from government debt.

The forint traded at 289.33 to the dollar, down from final quotes at 285.62 on Tuesday. On Wednesday, it moved between 285.39 and 290.02, an almost four-month low, after a one-week high at 280.05 last Friday.

It was quoted at 291.50 to the Swiss franc, down from 288.31 late Tuesday. Its range on Wednesday was 288.04 to 291.72, a more than tow-month low, after a more than two-week high at 283.59 last Friday. 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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