Forint rises again on interbank market

MNB

The forint was trading at 309.81 to the euro late Monday on the interbank forex market, up from final quotes at 311.44 on Friday and 311.47 on Sunday. Also at 311.47 to the euro early Monday, the forint moved between 309.69, an almost three-week high, and 311.64. Last week, the forint gained 0.12% versus the euro, after swelling 1.01% in the week before.

The Hungarian currency won some more versus both the euro and the dollar as investors wait for more clues about the intentions of the US Fed and the European Central Bank (ECB) with bias for the Fed staying pat longer than previously thought, and the ECB widening its quantitative easing rather sooner than later, while the base rate of the National Bank of Hungary (MNB) is expected to be unchanged at least through the end of next year in the baseline scenario.

However, investors cautiously capped the forintʼs advance near 310 to the euro as some analystsʼ mused too much strengthening might pose a serious downside risk the inflation target of the National Bank of Hungary (MNB), and might trigger an unexpected rate cut that could confuse present speculations.

Limiting the forint were also rising yields on Hungarian sovereigns in the secondary market, while first-rated bonds were back in vogue as share markets stalled in risk avoidance ahead of a probably sundry quarterly company results season.

Hungaryʼs yield rise corrected earlier falls, but it also reflected expectations that soon-to-be rising supplies will exceed possible demand of domestic financial institutions despite the much heralded dash of Hungarian financial authorities for "self-financing".

The yield on the benchmark ten-year Hungarian forint government bond rose 4bps to 3.34% on Monday in the secondary market, and Erste Bank sees it to rise to 3.6% by year-end and to 4% by end-2016. In 2016, Hungary has to refinance roughly EUR 6.5 bln worth of local-currency redemptions, the bank said in a note on Monday. Furthermore, the state is planning to refinance maturing foreign-currency bonds worth EUR 5.5 bln with forint bonds. In addition to the refinancing needs, the government will also need to finance its estimated EUR 2 bln budget deficit for 2016. Demand from local banks likely would not be sufficient to fully absorb all these, Erste said. It expects Hungary will need to tap foreign financial markets to raise "at least" EUR 1.5 bln worth of bonds there.

The forint traded at 272.70 to the dollar, up from 274.20 in final quotes on Monday and 273.98 on Sunday. On Monday, it moved between 272.30, a more than three-week high, and 274.18, after a four-day low at 280.36 last Tuesday intraday.

It was quoted at 283.40 to the Swiss franc, up from 285.03 late Friday and 285.01 late Sunday. Its range on Monday was 283.39, a three-week high, to 285.08, after a seven-day low at 288.72 last Tuesday intraday. 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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