Forint Advances Second Day as Bonds Rise on Hungary Aid Prospect - BusinessWeek

Jan. 18 (Bloomberg) -- The forint gained for a second day and Hungarian bonds rallied on speculation the government will accept conditions imposed by the European Union and the International Monetary Fund in return for a bailout.

Hungary’s currency appreciated as much as 1.5 percent and traded 0.9 percent higher at 306.5 per euro by 10:04 a.m. in Budapest. A close at that level would be the strongest since Dec. 27. The government’s benchmark 10-year bonds rallied for the first time in four days, cutting the yield 13 basis points, or 0.13 percentage point, to 9.651 percent.

The European Union yesterday threatened a lawsuit against Hungary for encroaching on the central bank’s independence, pressing Prime Minister Viktor Orban to resolve a dispute that halted talks on international aid for the country. Hungary is ready to comply with demands from the European Union over the central bank, Bild reported, citing an interview with Orban.

“The prime minister told the foreign press that all will be fine with the legislation which had been criticised, and that caused the rally,” Miklos Kolba, the Budapest-based head of foreign currency trading at ING Groep NV, said in comments sent by e-mail.

Orban is scheduled to speak at the European Parliament today. He has asked to speak to defend the country against “lies and groundless accusations,” his spokesman, Peter Szijjarto, said in a statement on Jan. 16.

“We will bow to power, not to the arguments,” Orban told Bild in the interview.

Legal Action

The EU commission’s concerns about Hungary’s central-bank independence stem partly from the country’s Magyar Nemzeti Bank law, which includes provisions that allow ministerial participation in meetings of the monetary council, requires agendas to be sent to the government in advance and oblige council members to take an oath of fidelity to the nation. The commission also expressed doubts about Hungary’s rules for dismissing the president of the central bank and monetary council members.

The EU also threatened legal action over measures which may curb the independence of Hungary’s judiciary and data protection authority.

“The process is simple: either the prime minister accepts that changes are required and the market can breathe a sigh of relief or the premier tries to negotiate,” Benoit Anne and Guillaume Salomon, London-based emerging-market strategists at Societe Generale SA, wrote in a research report today. “The latter would be very bad news.”

--Editors: Linda Shen, Balazs Penz

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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