Hungarian Forint Falls Against Euro as Prime Minister Resigns

March 23 (Bloomberg) -- The Hungarian forint weakened the most in 2 1/2 weeks against the euro after Prime Minister Ferenc Gyurcsany said he will quit as the central European economy heads toward its worst recession in at least 16 years.

The forint slumped as much as 2.6 percent to 308.62 against the euro, the weakest level since March 12, and traded at 302.62 per euro at 4:54 p.m. in Budapest, even after the central bank today kept interest rates on hold at 9.5 percent, the second- highest rate in the European Union, and said it discussed an increase to 10.5 percent.

Hungary became the first EU country to seek an International Monetary Fund-led bailout to avert a default last year, receiving 20 billion euros ($27.2 billion). The economy will contract 3.5 percent this year, according to central bank estimates. The forint tumbled to a record 317.22 per euro on March 6 and ranks as the worst-performing emerging-market currency worldwide this year.

“Gurcsany’s resignation is a negative factor in the short- term as it boosts political uncertainty and there’s a risk of the worst-case scenario of early elections,” said Jon Harrison, emerging-market currency strategist at Dresdner Kleinwort in London. “There’s a chance, however, that parliament could act quickly. And in the long-term, the resignation may be positive for the reform process.”