East European Currencies: Forint Has Weekly Drop Against Euro

By Ewa Krukowska

Oct. 11 (Bloomberg) -- Hungary's forint had its biggest weekly drop against the euro in more than five years as the market regulator probed trading in the shares of the country's top bank and on concern the financial crisis will spread to eastern Europe. The Polish zloty fell to a nine-month low.

The forint was the third-worst performer among regional currencies in the past five days as global stocks tumbled and investors curbed purchases of higher-yielding assets assets. Hungary's regulator said yesterday it will probe trading in OTP Bank Nyrt shares after the biggest one-day drop in 10 years on Oct. 9. The government and central bank pledged ``extraordinary'' steps to protect the country's markets.

``These days markets tend to overestimate risk and one potentially risky piece of news can cause a domino effect,'' Jaroslaw Janecki, chief economist at SG in Warsaw, said in an interview. ``On the one hand, we had the OTP rumors and investors' overreaction. On the other, very low liquidity on the bond market. This hurt the forint and spilled over into the zloty.''

The forint declined to as low as 272.50 per euro, its weakest intraday level since June 2007, and traded at 260.15 yesterday in Budapest, from 245.90 on Oct. 3.


The government denied reports Oct. 9 it was buying a stake in OTP. The bank's capital and liquidity are ``extremely strong,'' Chief Executive Officer Sandor Csanyi said yesterday.

Emergency Steps

The central bank may hold an unscheduled rate meeting and pledged to shore up the forint while the government acted to resuscitate the bond market after trading halted. The key stock index dropped as much as 13 percent, the most in 10 years. The benchmark five-year bond yielded 11.86 percent, the highest in almost nine years.

The government scrapped a limit on bond holdings for pension funds and offered to guarantee interbank loans, Finance Minister Janos Veres said yesterday. He pledged to use ``all tools'' to restore market stability.

Central bank Governor Andras Simor said in a press conference yesterday he saw no fundamental reason for the forint's weakness. The bank will hold daily euro-forint swap tenders to boost liquidity on the interbank market, he said, adding that Hungary does not plan ``intervention'' on the bond market.

``High volatility probably will stay with us for days, but we have the days from 2003 or 2006 in our minds which were good buying opportunities,'' Gyorgy Barcza, an economist at KBC Groep NV in Budapest, wrote in a note yesterday.

Goldman Recommendation

Goldman Sachs Group Inc. advised investors to stop betting the forint will outperform the zloty, reversing its August recommendation.

The zloty fell as much as 1.7 percent to a nine-month low of 3.6473 per euro and traded at 3.5815 yesterday in Warsaw. It logged a 5.3 percent weekly loss, the biggest since the introduction of the euro in January 1999.

The weakening of the zloty is ``not justified by the fundamentals of the Polish economy,'' the Warsaw-based central bank said yesterday. The economy is stable and the banking industry is in ``good condition,'' it said.

The Turkish lira had the steepest weekly decline since April 2001, trading at 1.4270 per dollar yesterday in Istanbul, from 1.3110 on Oct. 3.

Turkish companies' foreign-currency debts pose a ``serious risk'' to the economy as the financial crisis drives down the value of the lira, Arzuhan Yalcindag, head of the Turkish Industrialists and Businessmen's Association, said yesterday.

The Slovak koruna declined to a 4 1/2-month low of 30.825 per euro and last traded at 30.695, falling 1 percent in the week. The Czech koruna fell to 24.870 against Europe's common currency, from 24.813 on Oct. 3.

The Romanian leu advanced to 3.8009 per euro, from 3.8824 a week ago. The Bucharest-based central bank said it sold 40 million euros ($54.2 million) to support the leu, which fell to the lowest level in almost four years earlier this week.

To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net