Tuesday, August 14, 2007

Hungarian Forint and GDP Growth

From Bloomberg today:

Hungary's Forint Declines to Five-Month Low on Slowing Growth

Hungary's forint fell to a five-month low versus the euro after a report showed the economy grew at the slowest pace in more than a decade.

The forint dropped for a fourth day, its worst run in two months, after Hungary's statistics office said gross domestic product growth slipped to 1.4 percent in the second quarter, the weakest since 1996. A separate report showed inflation in the country slowed in July, giving the central bank room to lower interest rates.

``It was definitely disappointing,'' said Barbara Nestor, an emerging market strategist at Commerzbank AG in London. The data ``should have some impact'' on the currency.

Against the euro, the forint fell as much as 1.4 percent to the lowest since March and traded at 256.30 by 5:10 p.m. in Budapest, from 252.92 yesterday.

Hungary's currency also dropped almost 2 percent to a two- month low versus the dollar, and was recently at 188.85, from 185.78 on Aug. 13.

Hungarian government bonds advanced on the expectations for lower rates, with the yield on the 6.75 percent benchmark security due November 2017 falling 1 basis points to 6.73 percent. Yields move inversely to bond prices.

Growth in Hungary's economy slowed in the second quarter as Prime Minister Ferenc Gyurcsany's government spent less on investment and infrastructure and household spending declined.

The rate of consumer-price inflation fell to 8.4 percent from 8.6 percent in June, stoking speculation the central bank will cut the European Union's highest borrowing costs from 7.75 percent.

Global Risk Aversion

Global risk aversion pushed other European emerging market currencies lower as their stocks fell. The NTX index of the 30 largest companies in central and eastern Europe slipped 0.8 percent and bourses in Budapest, Prague and Warsaw all retreated.

``Emerging market sentiment'' is ``a bit softer today,'' said Lucy Bethell, a currency strategist at Royal Bank of Scotland Group Plc, in London.

Poland's zloty fell to 3.8068 per euro from 3.7761 yesterday after a government report showed consumer prices dropped 0.3 percent in July, reducing the chances the central bank will raise interest rates from 4.75 percent at its meeting Aug. 29.

The Slovak koruna fell to 33.522 per euro from 33.425 yesterday, while Turkey's lira dropped 1.3 percent to 1.3061 per dollar.

The Czech koruna rose to to 27.968 versus the common European currency, the highest since Aug. 1, from 28.016 yesterday. The Romanian leu fell to 3.2063 per euro, from 3.1883.

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