Hungary's forint drops versus euro, central bank eyed

BUDAPEST Mon Dec 17, 2012 12:58pm GMT

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BUDAPEST (Reuters) - Hungary's forint fell more than 1 percent on Monday, with the pair crossing key technical levels and dealers citing rumours that the central bank could change its policy on two-week bills.

"A rumour has been going around about the central bank cutting to zero the amount it accepts in two-week deposits," one dealer told Reuters.

Several others confirmed the existence of the rumour in a country which has put investors on edge over the past two years with a raft of surprise policy announcements.

But a central bank source told Reuters that market talk of the bank slashing the amount of offers in its 2-week bills to zero was "nonsense."

"This is nonsense. There's been no word about that," the source, who wished to remain unnamed, told Reuters.

A leadership change at Hungary's central bank next year will allow the government to build a "strategic alliance" with the bank to boost the economy, Economy Minister Gyorgy Matolcsy said on Saturday.

The two-week bills, sold at weekly auctions, are the bank's main tool to manage liquidity in interbank markets.

Janos Cinkotai, one of the seven members of the rate-setting Monetary Council, declined to comment on the rumours.

"The weakening started from London then spread, and with stop losses triggered there could be more of this," one dealer said.

The forint traded at 287.23 versus the euro at 1205 GMT, weaker by about 1.3 percent from an opening level of 283.60, Reuters data showed.

Several dealers also said that a JP Morgan client note earlier on Monday, which set a target for the euro/forint cross at 299, also affected markets.

One dealer added there has been wide speculation in the market for weeks about potential plans the central bank may have, including plans about the two-week bills.

Commercial banks currently park a total of 4.19 trillion forints in the bank's 2-week bills, which carry an interest rate of 6 percent, the same as the bank's base rate.

(Reporting by Marton Dunai/Sandor Peto; Editing by Catherine Evans)

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