Forint hits eight-week low as central bank shifts rate hikes to lower gear

BUDAPEST: Hungary's forint hit an eight-week low against the euro on Friday, extending its losses for a third straight session, after the central bank slowed the pace of rate rises despite lifting its inflation forecasts.

At 0801 GMT, the forint was down 0.3%, leading losses in central Europe and giving up a large part of its gains posted this year.

The Hungarian and Czech central banks both started raising rates in June, boosting the forint and the crown by some 3% versus the euro ahead of Tuesday's Hungarian rate meeting, when the bank raised rates by a smaller-than-expected 15 basis points to 1.65%.

Despite raising its inflation forecasts for this year and the next, the National Bank of Hungary (NBH) said it would hike rates further in 15-basis-point steps, slowing the pace of tightening after three successive 30-basis-point hikes.

The forint fell over 1% versus the euro since Tuesday, paring its gains for the year to 1.6%. The crown's gains, meanwhile, still exceed 3% this year as the debate among Czech rate setters is shifting towards faster tightening.

Forint hits six-week-low, Evergrande crisis hammers stocks

"The NBH is in a bind as it would need to continue raising rates due to high inflation, however, they cannot hike too much further as that could trigger a backlash," a currency dealer in Budapest said.

"The elections are coming, many people are indebted and big rate rises would probably not be good news for them," the trader said, adding that potential spillover risks from the Evergrande crisis and rising energy prices also weighed on sentiment.

Earlier on Friday, Hungarian Prime Minister Viktor Orban said he aimed to speed up an extra month of payment to pensioners as he ramped up a pre-election spending spree ahead of what promises to be a closely-fought ballot early next year.

Last week, Orban also eased repayment rules for retail credit card loans and overdraft credit as part of an extended debt moratorium, making banks charge lower interest rates on such borrowing.

The Polish zloty fell 0.2% in early trade, while the crown was 0.1% weaker. Budapest stocks also underperformed the region with a 0.45% retreat as all blue-chip shares were mildly in the red.