Hungary’s forint pared losses after the nation’s central bank cut interest rates, calming a slump caused by a split with the European Union over Ukraine.
The forint trimmed earlier losses of as much as 0.9% against the euro — the biggest among emerging markets on Tuesday — after the central bank lowered its overnight interest rate by a full percentage point to 17%. While that was expected by economists, it signals the start of an end to an emergency policy regime.
Scaling back the EU’s highest borrowing costs may reduce economic headwinds that have helped fuel a recession while raising the risk of renewed currency depreciation.
Earlier, the currency took a hit after Prime Minister Viktor Orban — widely perceived to be the EU leader with the closest ties to the Kremlin — told Bloomberg that Ukraine can’t beat Russia “on the battlefield” and confirmed that his country has diverged from the bloc’s “mainstream” approach to aid for the war-torn nation.
Read More: Ukraine Can’t Win War Against Russia, Orban Says
“Hungary may have to wait longer until the European Commission unlocks EU funds after the country announced that it will block another tranche of financial support for Ukraine,” said Piotr Matys, a senior currency analyst at In Touch Capital Markets.
The forint traded down 0.4% at 375.25 per euro by 3:05 p.m. in London. The forint is still up 6% against the euro year-to-date, as the high interest rates have lured investors.
(Adds central bank rate decision, updates throughout.)
