Hungary's forint declines on concern yield premium is waning

Hungary's forint fell by the most this week against the euro amid investor concern the country's assets may lose their yield advantage after the European Central Bank signaled it will raise rates next month. That enticed investors into the so-called carry trade, borrowing money elsewhere, in the European Union for example, at a lower rate, to buy forints and invest in high-yielding Hungarian assets. „The forint is a currency that is traded on a carry basis,” said Barbara Nestor, an emerging-market strategist at Commerzbank AG in London. „The ECB seems to be moving higher, and this is decreasing the yield differential.” Against the euro, the forint traded at 276.84 at 5:10 p.m. in Budapest, from 275.29 late Aug. 30, and 272.13 on July 31. The currency is down 1.7% this month. Declines in the forint may be limited after Hungary's government approved its plan for adopting the euro. The plan will be submitted to the European Commission today, government spokeswoman Emese Danks said yesterday. The government will further detail its euro-entry plan at a press conference today at the conclusion of its two-day session in Balatonöszöd, western Hungary. In other trading, the Czech koruna was little changed at 28.25 per euro at 5:10 p.m. in Prague after the Czech central bank left its benchmark lending rate at 2.25%. The koruna advanced by almost 1% this month, a second consecutive month of gains. The seven-member board's decision to leave the two-week repurchase rate at the lowest in the EU matched the expectations of all 11 economists surveyed by Bloomberg News. „Since the previous meeting, not much has changed and nothing occurred that would surprise us,” central bank Governor Zdenek Tuma said yesterday. „We still believe that we can build on a forecast that assumes in a longer-term period a certain rate increase.” (Bloomberg)