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Forint declines after inflation accelerates less than forecast

Hungary's forint fell against the euro after a government report showed inflation accelerated by less than economists had forecast.

The annual rate reached 6.5% in December compared with a 6.6% median forecast of 13 economists in a Bloomberg survey. Hungary's inflation rate has almost tripled in the past six months as Prime Minister Ferenc Gyurcsány’s government raised the value-added tax rate and boosted utility bills.
The forint is the world's second-best performing currency in the past three months, after the Slovak koruna. „The market is a bit nervous,” said Steven Barrow, chief currency strategist at Bear Stearns Cos. in London. „The inflation number gave a good excuse to take a little bit of profit on the forint.” Against the euro, the forint fell to 253.20 at 4:46 p.m. in Budapest, from 252.11 late on Monday. It may reach 254 per euro this week, Barrow said.
The December inflation rate is the highest in more than two years, as food became more expensive and the effect of higher energy prices reverberates. Accelerating inflation forced the central bank to raise its benchmark interest rate five times last year, from 6% to 8%. Policy makers have pledged to remain vigilant of a potential pickup in the pace of inflation. In other trading, the Polish zloty fell 0.2% to 3.88 per euro in Warsaw, from 3.87 late on Monday. The Czech koruna dropped to 27.81 per euro in Prague.

The Czech central bank said yesterday the country's current account gap narrowed to 11.2 billion koruna in November from 26.2 billion in October, and compares with 12.5 billion deficit forecast by 4 economists in Bloomberg News survey. Czech central banker Mojmir Hampl, who joined the rate-setting board last month, said there's no reason to raise interest rates now as the strong koruna and sliding oil and food prices may keep inflation at bay.
Hampl „can't see the moment” when policy makers will push up rates again, after raising them twice last year, he said in an interview in Prague on Monday. At the same time, a reduction isn't necessary because the koruna probably will weaken. The currency's 3% gain against the euro and 7% against the dollar in the Q4 made it the fourth best-performing currency in the world last year, capping import costs and keeping inflation below the central bank's 3% inflation target. Koruna fell more than 1% against the euro since the beginning of the year.
The Slovak koruna lost 0.3% to 34.92 per euro in Bratislava, from 34.82 late on Monday. The koruna's current rate makes it more unlikely the central bank will raise borrowing costs, central bank board member Karol Mrva said yesterday. Mrva who is responsible for foreign-exchange operations and trading, declined to say whether the central bank could start considering a rate cut later this year. Slovakia kept borrowing costs at 4.75% for three consecutive months. (Bloomberg)