Forint up on surprise debt plan

MNB

The forint was trading at 311.35 to the euro late Tuesday on the interbank forex market, up from 312.40 late Monday. At 312.30 to the euro early Tuesday, the forint moved between 310.32, a four-day high, and 312.39.

Secondary market Hungarian sovereign yields fell on Tuesday, mainly in the middle of the curve, after the economy minister said Tuesday evening that the government could issue foreign currency debt this year if it could get favourable terms.

This came as a vast surprise as the government had been so far seen to be strongly committed to selling only forint debt until the end of 2015 to cut the reliance of Central Europe's most indebted state on foreign financing.

But now it might see an opportunity for good terms as the European Central Bank (ECB) is to start limited quantitative easing in October, while credit demand in the real economy is still lukewarm in Western Europe, analysts said.

A too steep fall of yields, however, would be counterproductive as it could narrow the yield premium compared to top rated debt while US treasury yields are condemned to rise anyway in view of the expected Fed rate hike early next year. But this risk can be balanced if Hungary's central bank is not forced to cut rates any further by slowing economic growth, they added.

The National Bank of Hungary (MNB) kept its main policy rate unchanged for the second consecutive month on Tuesday.

Hungarian assets were probably also helped by further comments from the economy minister, who said the government wanted to cut spending in the next few years.

Fresh data on the Hungarian current account, still strongly positive, added to the upside.

Hungary's improved external balance position is likely to protect the forint from a considerable depreciation, despite the expected lengthy period of a low policy rate of 2.1% of the central bank, and risks regarding the government's foreign currency mortgage conversion scheme, expected in the first half of 2015. said Erste in a note on Tuesday, after penciling in 307 forint to the euro by the end of the year Monday.

The forint traded at 242.10 to the dollar, up from 243.11 late Monday. On Tuesday, it moved between 240.89, a five-day high and 243.12.

It was quoted at 257.97 to the Swiss franc, up from 258.64 late Monday. Its range on Tuesday was 257.05, a four-day high, to 258.83.

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