Hungarian forint extends losses after overnight protests

Analysis

The Hungarian forint slid for a second day following overnight clashes between police and anti- government protesters calling for the resignation of Prime Minister Ferenc Gyurcsány.

Street violence, the worst since the 1956 revolt, broke out last month after Gyurcsány was caught lying on tape about the economy to win re-election. The forint has lost 0.7% so far this week as the 50th anniversary of Hungary's anti-communist uprising was marked by riots. ”Riots mean political uncertainty which are negative for the forint,” said Illés Tóth, a currency and bonds analyst at DZ Bank AG in Budapest. Against the euro, the forint fell 0.2% to 264.36 at 9:31 a.m. in Budapest. At least 128 people were injured in clashes with police who used tear gas, rubber bullets and water cannons to quell the protests in Budapest.

Losses may be limited on speculation Hungary's central bank will  likely increase its benchmark interest rate a quarter-point to 8% this week to curb inflation. The Budapest-based bank will announce its decision today at 2 p.m. The bank's 13 policy makers will raise the two-week deposit rate for a fifth straight month, according to 15 of 17 economists in a Bloomberg survey. Nine predict a quarter-point increase, six forecast a half-point increase and two see no change. Gyurcsány has raised taxes and increased some state- regulated prices to reduce the deficit, the biggest in the European Union, to help meet terms for adopting the euro. Accelerating consumer-price increases last month heightened concern that government measures will push inflation above the central bank's target of 2% to 4% through the end of 2009. (Bloomberg)

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