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Forint eases to 5-week low on rate cut expectation

imageBUDAPEST: The forint extended its losses against the euro on Friday, underperforming Central European currencies due to expectations of further interest rate cuts by the National Bank of Hungary.

The expectations were triggered by Thursday’s Hungarian figures which showed a record 0.7 percent annual fall in consumer prices in November.

The forint tested 5-week lows against the euro, easing 0.2 percent to 308.73 by 0917 GMT.

The Hungarian central bank, which finished its rate easing cycle in July after two years of cuts, is expected to keep its 2 percent base rate on hold at its meeting on Tuesday.

But a drop in core inflation to 1.2 percent from 1.5 percent in October is likely to tempt the bank to follow the example of other central banks in the region and reduce its interest rates further early next year, Commerzbank said in a note.

“…we see rates being cut another 40 basis points from here during H1 2015,” Commerzbank analyst Tatha Ghose said.

The 10-year government bond yield of Poland, the region’s biggest economy, dropped 4 basis points to 2.56 percent, tracking a decline in German yields to record lows.

“But Hungarian yields are flat as the forint’s weakening is making investors cautious here,” one Budapest-based fixed income trader said.

Low or negative inflation levels and struggling growth in Europe prompted more monetary easing in Central Europe this year, keeping the region’s currencies weaker against the euro than levels projected a year ago.

The forint has eased almost 4 percent this year, the zloty and the Czech crown about one percent and the leu has been flat.

Faster economic growth in the region than in the euro zone is expected to trigger gains in Central European currencies next year.

Copyright Reuters, 2014

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