East European Currencies: Hungarian Forint Drops for Third Week

By Ewa Krukowska

Oct. 17 (Bloomberg) -- Hungary's forint fell for a third week against the euro on concern government and central bank measures to revive credit markets will fail to shield the economy from a financial crisis. The Turkish lira also declined.

The forint slid to near a two-year low after Goldman Sachs Group Inc. reduced its currency and economic-growth forecasts for the country and Fitch cut the outlook on Hungary's foreign- debt rating. The MTI news agency also cited Finance Minister Janos Veres as saying the government cut its expansion and inflation predictions for 2009.

``Emergency measures enacted by the National Bank of Hungary over the past few days are likely to assuage foreign exchange-funding problems for the banks,'' Angus Halkett, a strategist in London at Deutsche Bank AG, the world's biggest currency trader, wrote in a research note. ``The medium-term outlook for the forint remains bleak.''

The forint was little changed at 267.79 per euro by 4:04 p.m. in Budapest, declining of 3.8 percent in the past week.

The Hungarian currency, once a favorite for the carry trade because of the country's 8.5 percent key interest rate is the third-worst performer against the euro among European and African currencies this month as rising risk aversion saps appetite for higher-yielding assets.

Hungary has a ``near zero'' chance of defaulting on its debt, central bank President Andras Simor said on state television station MTV yesterday. Fitch today lowered its outlook on the nation's BBB+ debt rating to ``negative'' from ``stable.''

`More Depreciation'


``While the package of measures announced by the Hungarian government and central bank has been commendably swift, there may be more to come in terms of the forint depreciation,'' Koon Chow, a strategist in London at Barclays Plc, wrote in a note today.

The Hungarian economy will grow 2.2 percent this year and 1.5 percent next year, down from 2.3 percent and 2.5 percent in a previous estimate, Goldman analysts including Rory MacFarquhar wrote in an e-mailed report today. The forint will trade at 245 per euro in six months, compared with a previous forecast of 230, they said.

``Shocks from global financial turbulence and the likelihood of recession in the euro area have heightened downside credit risk given Hungary's high external-debt stock, wide current-account deficit and large external-financing requirement,'' David Heslam, director of Fitch's sovereign team in London, wrote in a report.

Creating Liquidity

Hungary is focusing on creating liquidity in money markets with the backing of banks and investments funds, Prime Minister Ferenc Gyurcsany said today in an interview on state television.

The European Central Bank said yesterday it will support Hungary's money-market operations with a loan of as much as 5 billion euros ($6.7 billion). The government is also drawing up proposals to help ease foreign-exchange risk for borrowers, Gyurcsany said.

In other trading, the Turkish lira fell to 1.5170 against the dollar, from 1.5035 yesterday, declining 5.6 percent since Oct. 10, while the Romanian leu rose to 3.6578 per euro, from 3.7926 yesterday, advancing 4.1 percent from last week.

The Czech koruna fell to 25.155 per euro, from 24.987 yesterday, losing 1.1 percent in the past five days.

The Polish zloty fell to 3.5462 per euro, compared with 3.5651 yesterday, climbing 1 percent since Oct. 10.

Polish industrial output rose a more-than-expected 7 percent in September, after falling 3.7 percent in August, a report from the statistical office showed today.

Policy maker Marian Noga told TVN CNBC Biznes today he saw a ``small'' chance of the Warsaw-based central bank cutting the 6 percent main interest rate.

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