Forint reaches 11-month high

The Hungarian forint appreciated to an 11-month high of 266.25 yesterday on hopes that the government will be able to roll over maturing external debt. The debt management agency announced the issuance of $3bn of a 10-year bond and $750mn of a 30-year bond at respectively 310bps and 330bps spreads above benchmark US treasuries. This will cover 66% of the €4bn expiring foreign debt in 2011, thus the current issue could be a major relief to investors about the sustainability of Hungary’s public and external debt.

The Polish zloty posted only modest gains on Thursday despite the fact that the EUR/PLN currency pair dipped below 4.02 EUR/PLN in intraday trading. Deputy Finance Minister Kotecki said yesterday that the rate of inflation would most likely top 4% in the first half of the year. According to our estimates, inflation in March could reach 3.9% and April's inflation might exceed 4%.

We expect that the zloty could stay above 4 EUR/PLN level during the forthcoming sessions. Although we bet on a rate hike at April's meeting, it is far from being clearcut. Moreover, the Portuguese rating cuts might cap prospective gains.