Forint Skips Swiss Franc Shock as Loan Conversions Save the Day

(Bloomberg) — Hungary’s timely move to cut its citizens’ exposure to Swiss franc-denominated loans is helping the forint avoid the weakness seen among its eastern European peers, the currency’s best forecaster said.

The forint gained 0.4 percent to 315.22 a euro at 2:37 p.m. in Budapest, the strongest level in three weeks. The currency has appreciated 2.3 percent since Jan. 15 for the best performance among 24 emerging-market currencies tracked by Bloomberg, as the Polish zloty, Romanian leu and the Russian ruble fell.

Policy makers in eastern Europe are assessing how to insulate foreign-currency borrowers from costlier repayments after the Swiss National Bank’s decision to end a cap on the franc’s value made the currency surge. Hungarian households expect less impact from the shift than the rest of the region because the government and the central bank got $12 billion of mortgages converted into forint-based loans last year.

“The currency moves are more related to the Swiss franc loans,” said Anezka Christovova, an analyst at Credit Suisse Group AG in London and the forint’s most accurate forecaster against the euro last year, according to Bloomberg rankings. Other regional currencies faced “a panic reaction” as investors feared these countries may face trouble, she said.

Credit Suisse sees the forint weakening to 320 a euro by the end of March compared with a median estimate of 315 in a Bloomberg survey of 22 economists. That represents a depreciation of 1.4 percent from the current level.

The loan conversion followed several steps from Hungary, including allowing borrowers to make lump-sum repayments at below-market rates and introducing a system to get banks and the government to share the costs with borrowers.

Rates Boost

Also helping the forint is the Hungarian central bank’s determination to keep rates unchanged at a record-low 2.1 percent this year, Christovova said. It may also raise the currency’s allure as rate-setters from Poland to Romania consider lower rates, she said.

Hungarian consumer prices fell an annual 0.9 percent in December, the deepest decline in five decades, data showed Jan. 14. Inflation is on a “moderate, predictable” path, central bank President Gyorgy Matolcsy said Jan. 6.

Policy makers will probably keep rates unchanged, according to Credit Suisse’s Christovova. “If the Hungarian central bank continues to resist easing, the forint can stabilize.”

To contact the reporters on this story: Marton Eder in Budapest at [e-mail]; Zsofia Vegh in Budapest at [e-mail] To contact the editors responsible for this story: Wojciech Moskwa at [e-mail] Srinivasan Sivabalan, Zahra Hankir