The Hungarian forint fell 0.6 percent to 298.74 per euro by 11:56 a.m. in Budapest, the weakest on a closing basis since April 10 and making it the worst performer among more than 20 emerging market currencies.

Euro-area services and manufacturing contracted more than estimated in April, Markit Economics said. Separately, HSBC Holdings Plc and Markit also reported a preliminary reading signaling contracting in China.

One of the parties in the Dutch minority coalition withdrew as the government tries to pass a budget meeting European Union targets and the results of the first round of France’s presidential election also cut demand for riskier assets.

“The Hungarian forint is the worst-performing currency this morning in a general risk-off mood post French elections and Dutch budget.” according to comments from Guillaume Salomon, a London based strategist at Societe Generale SA.

The Magyar Nemzeti Bank paid out 2.5 billion euros of the total to lenders from October to the end of February, the bank said in a summary of transactions posted on its website today.

The government forced commercial banks to swallow exchange- rate losses on foreign-currency denominated mortgages by giving borrowers the option to repay their loans in a lump sum at below-market rates. Two-thirds of housing loans were denominated in foreign currencies, mostly in Swiss francs, and installments on them soared as the forint weakened.

Hungarians repaid 170,000 mortgages under the plan in a value of 1.4 trillion forint ($6.3 billion), cutting the total amount of outstanding foreign-currency mortgages by 23.3 percent, the financial market authority said in a report today.

The central bank allowed domestic lenders to tap its foreign currency reserves to cope with an expected increase in demand for Swiss francs and euros.

Domestic lenders booked a combined pretax loss of 370 billion forint on the repayment program, the authority known as Pszaf said, adding that lenders will be able to deduct some of their losses from a special bank tax.

Hungary’s banking industry was unprofitable for the first time in 13 years in 2011 because of the repayment plan, the special industry tax, and rising bad loan provisions. Banks posted a combined loss of 92.6 billion forint, Pszaf said Feb. 23.

Hungarian households are struggling to repay their foreign- currency loans as the forint weakened, boosting monthly installments and delinquency rates. The currency depreciated 39.7 percent against the Swiss franc and 19.7 percent versus the euro from mid-2008, when the bulk of these loans were taken out.

About 92 percent of repaid mortgages were denominated in Swiss francs, Pszaf said today, adding that banks’ return on equity fell 9.5 percentage points as a result of the repayments.

OTP Bank (OTP) Nyrt., Hungary’s largest lender, competes mostly with units of international banks including Erste Group Bank AG (EBS), Raiffeisen Bank International AG (RBI), UniCredit SpA (UCG), Bayerische Landesbank AG (BLGZ), KBC Groep NV, and Intesa Sanpaolo SpA. (ISP)

The government of Prime Minister Viktor Orban and local banks agreed in December to share costs for forgiving some foreign-currency loans and taking on currency risks for others in the next five years. Under the plan, banks will take losses of as much as 600 billion forint and the government will assume 300 billion forint.

The currency of Hungary, the European Union’s most indebted eastern member, appreciated 1 percent to 288.1 per euro by 4:35 p.m. in Budapest, the biggest advance on a closing basis since Feb. 13. A second day of gains in the government’s benchmark five-year bonds cut yields 25 basis points to 8.425 percent.

The Frankfurt based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days, a bigger allotment than economists estimated in a survey. Hungary’s central bank yesterday kept its two-week deposit rate at 7 percent, the highest benchmark rate in the EU.

“With the EU’s highest base rate, investors tend to favor the forint when there is a risk-on mode,” Peter Karsai, a trader at Commerzbank AG in Budapest, wrote in an email after the ECB announcement.

The Hungarian forint has rallied 11 percent, the biggest gains worldwide, since Prime Minister Viktor Orban said on January 5 he was ready to discuss conditions needed for a quick bailout from the International Monetary Fund and the EU.

The government still hasn’t resolved disputes with the international lenders over the independence of the central bank and other institutions, more than three months after requesting IMF aid.
‘Very Downbeat’

“The news flow on the European Commission/IMF front is very downbeat,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, wrote in an emailed note today, adding that the forint rallied on optimism that the ECB funding is “ultimately finding its way into emerging markets.”

The EU and the IMF still need to clarify what Hungary needs to do to start aid talks, Mihaly Varga, Prime Minister Viktor Orban’s chief of staff, told Inforadio in an interview late yesterday.

The proposal to withhold the funds is the latest stage in a protracted dispute over the country’s finances and suspected violation of civil rights. Before it can be applied, it has to be endorsed by the EU’s other 26 member states.

Hungary denounced the proposal “unfounded and unfair” and drew attention to the fact that the country’s budget deficit was below 3 percent of gross domestic product in 2011 and is forecast to remain below that critical level in 2012.

“The facts prove that the government’s economic policy is taking Hungary in a good direction,” the government said in a statement that also highlighted the country’s 1.7 percent growth rate in 2011. That was 0.1 percentage point higher than the 27-nation EU as a whole.

It is the first time the European Commission has proposed to suspend development funds from one of its members over an excessive deficit. The so-called cohesion funds, which are targeted in the sanction, support transport and environmental projects in the EU’s poorer regions.

The Commission has been pressuring Hungary to cut its budget deficit, which has been breaking the bloc’s limit of 3 percent of economic output ever since the country joined the bloc in 2004 when one-off measures are stripped out.

Despite several warnings, the government in Budapest has so far failed to take any more structural actions to reduce its spending. “This decision today is to be regarded as an incentive to correct a deviation, not as a punishment,” said Olli Rehn, the EU’s economic affairs commissioner.

Since the funds that the Commission is threatening to withhold are for 2013, Hungary has until January next year to take action and avoid sanctions.

The Hungarian forint’s exchange rate fell 0.6 percent against the euro to Ft288.4, compared to the five month high of Ft285.6 it reached on Tuesday.

It is now well clear of the Ft320 level it touched in early January when the government was forced to abandon a go it alone financial strategy and seek support from the EU and the IMF.

Hungary is the EU’s most indebted eastern member, and the Hungarian forint depreciated 0.8 percent to 293.8 per euro by 10:33 a.m. in Budapest. The forint rose to 287.8 during yesterday’s trading, the highest in more than four months, as data showed Hungary’s economy expanded more than economists expected in the fourth quarter.

Europe’s creditor countries have been struggling to reach an agreement over a rescue of Greece, seeking more control over how future aid is spent as the country faces the threat of default over a bond payment due on March 20.

Hungary will tomorrow send a reply to the European Commission that will address the disputed laws obstructing its own aid talks, without allowing those outside Hungary to “overwrite” its policies, Prime Minister Viktor Orban said today.

“The negative Greek news hurt sentiment, so the forint weakened from its four-month high,” Imre Kerekgyarto, a Budapest-based currency trader at Commerzbank AG, and colleagues wrote in an e-mailed report today. “Despite the hope that Hungary’s economy may avoid recession this year, rising risk aversion is overshadowing trading.”

Investors are wrong to assume that Hungary reaching an agreement with the IMF and EU on a financing package is a “done deal,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, wrote in a research report late yesterday after meeting government and central bank officials in Budapest.

The forint appreciated as much as 1.4 percent and traded 1.3 percent higher at 299.85 by 4:39 p.m. in Budapest, the strongest level on a closing basis since Dec. 6 and set for a 4.3 percent gain since Jan. 16. The cost of insuring against default on Hungary’s debt with credit-default swaps fell to 597 basis points from 610 on Jan. 20 and compared with a record high of 735 basis points on Jan. 5. A basis point is one hundredth of a percentage point.

Orban is trying to revive bailout negotiations with the European Union and the International Monetary Fund after discussions broke down in December over his refusal to change laws that both organizations said may weaken monetary-policy independence. Orban offered to change disputed legislation after the EU threatened a lawsuit against Hungary for encroaching on the central bank’s independence and political meddling with the judiciary and the data-protection authority.

“Positive sentiment towards the forint continues on more supportive comments about Hungary’s prospects of getting an agreement with the IMF,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, and colleagues wrote in an e-mailed report today.

Investors should buy the forint and sell the Polish zloty, Simon Quijano-Evans, a London-based economist at ING, said in an e-mailed report today, citing the planned moves by Orban on the central bank law. The forint appreciated 0.5 percent to 70.06 per zloty.

Hungary’s currency appreciated as much as 1 percent and traded 0.9 percent stronger at 302.25 per euro at 11:56 a.m. in Budapest, the highest intraday level since Dec. 21 and compared with a record low of 324.24 reached on Jan. 5. The forint had the biggest one-day rally among more than 170 currencies tracked by Bloomberg. The government’s benchmark 10-year bonds climbed, cutting the yield 28 basis points, or 0.28 percentage point, to 9.303 percent.

Orban is trying to revive negotiations with the EU and the International Monetary Fund after discussions broke down in December over his refusal to change a central bank law that the institutions said may weaken monetary-policy independence. The EU also threatened a lawsuit against Hungary for encroaching on the central bank’s independence and political meddling with the judiciary and the data-protection authority.

“Markets currently start pricing out a worst case scenario for Hungary as Orban shows willingness to cooperate,” Felix Herrmann, a Frankfurt-based economist at DZ Bank AG, wrote in a research report today.

Hungary sold a planned 45 billion forint ($192 million) in one-year Treasury bills at an auction today at an average yield of 8.19 percent, compared with 9.96 percent at the last sale of that maturity two weeks ago, according to auction results from the Debt Management Agency. That marked the biggest drop in borrowing costs between two auctions of that maturity since December 2008.

Money Transfers to Hungarian forint (HUF) with Currencies Direct

Currencies Direct, with more than £1.5 billion annual turnover is one of Europe’s leading non-bank providers of international payment and money transfer services. Since its formation in 1996 Currencies Direct has maintained its focus on being an innovative service provider of foreign exchange transfers for consumers and high net worth individuals with an extensive client base of 200,000.

Head quartered in the City of London (United Kingdom) with operations in Europe, Africa, Asia and the United States, Currencies Direct is part of the Azibo Group, a privately owned investment company.

Currencies Direct can typically save clients up to three per cent of the value when sending a payment to Hungary by providing commercial foreign exchange rates rather than retail rates to its customers. Money transfers are free for all transactions over £5000 and those wishing to make regular transfers to Hungary every month also benefit from fee-free transactions.

Find out more about how you can transfer money to or from UK sterling to Hungarian forint’s with Currencies Direct, click the link: Currencies Direct

Making Sure Your Hungarian forint Money Transfers Are Safe

Currencies Direct is authorised and regulated by the Financial Services Authority FSA) FRN 504360, under the Payment Services Regulations 2009, for the provision of payment services. In addition, Currencies Direct subscribe to the Non-Investment Products code created by the Bank of England which regulates companies involved in foreign exchange transactions such as spots and forward contracts.

Currencies Direct Ltd holds a certificate of registration for Money Laundering Regulation (MLR). Registration number: 12132225. Currencies Direct Ltd – Authorised and regulated by the Financial Services Authority (FRN No: 504360) for the provision of payment services.

Ensuring your money is safe and you are treated fairly, is the fundamental principle of how Currencies Direct do business. You can trust Currencies Direct to protect your funds when you make an international money transfer.

Find out more about how you can transfer money to or from UK sterling to Hungarian forint, the US dollar, the euro and many other global currencies with Currencies Direct, click the link to visit their website: Currencies Direct

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 (INGA), 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.

Conservative Prime Minister Viktor Orban fell out with international lenders after they rejected several of his policies but plunging financial markets and criticism from abroad have forced him to backtrack.

Thousands of Hungarians have protested new laws that are seen as undemocratic and the forint’s slide to previously unseen levels has stirred fears over their personal finances.

A leading tabloid “Bors” said on its front page on Sunday: “If default comes, we are finished in half a year. Only the IMF can save us from collapse.”

The head of Hungary’s negotiating team, Tamas Fellegi, is in Washington this week with a mandate from Orban to accept a precautionary International Monetary Fund loan with stricter conditions than he originally wanted. Aid talks with the European Union are expected to follow.

Zoltan Kosa said his Exclusive Change chain of 280 exchange kiosks saw a jump in turnover whenever the forint exchange rate fluctuated wildly last week. He said people bought euros, U.S. dollars, pounds, Swiss francs and even Norwegian crowns.

“There’s no panic, but there is a palpable fear among ordinary people,” Kosa said.

Other people who had bought euros when the forint was stronger have begun to cash in, he said.

Many Hungarians have home loans denominated in foreign currencies and their repayments have risen sharply.

“For me, what’s at stake is my mortgage. I have a small apartment… with a small mortgage that grew pretty huge in the past few months. This strong euro, or weak forint… it’s killing me,” said Gabriella Feledi, 29, a hair dresser.

FLEXING HIS MUSCLES

Orban, whose Fidesz party shot to power in 2010 with the strongest majority in post-communist history, has tried to strengthen his influence over media and public institutions including the central bank.

This has angered businesses and investors and helped lose him almost half of his supporters at home. Over half of all Hungarians say they would no longer vote for any political party.

Orban has said all issues are up for discussion in the talks with the IMF and the EU but they are still expected to be difficult.

The most thorny subject is a new law which the lenders and the European Central Bank say curbs the Hungarian central bank’s independence.

IMF Managing Director Christine Lagarde said over the weekend she hoped “the Hungarian authorities will be very keen to have their legislation in compliance with European regulation as well, particularly when it concerns the independence of their central bank.”

Orban said the same day he saw no legal problem with the law, especially because the EU did not complain in 2004 when a previous Socialist government had enlarged the Monetary Council, one of the new measures.

The government is not planning to draw on the money but with about 4 trillion forints ($16.07 billion) worth of debt to roll over this year, including repayments of a 2008 IMF/EU deal, analysts say the new deal is crucial for avoiding a market collapse.

Hungary’s debt rating was cut to BB+ by Fitch on Friday, the third downgrade to “junk” by international rating agencies since November.

Markets calmed down on Monday on hopes of a new IMF deal, and the forint firmed to 315 from last week’s record low of 324.20.

Many Hungarians and analysts expect Orban will eventually do everything necessary to come up with a deal.

“It’s foolish to think there will be a default. It’s just the Hungarian way, coming up with a solution in the very last minute,” said Geza Kis, 50, a chauffeur.

“Orban is flexing his muscles because he thinks people like that at home, but we know it’s just a show.”