Speculators attack Hungary's currency

Hungary's central bank has slashed one percentage point off its key interest rate for the second time in two days to protect its currency from foreign speculators.

The move by the National Bank of Hungary - which cut rates to 6.5% - is an attempt to devalue the forint as it soars against the euro.

"The National Bank of Hungary faced unjustified speculation against the forint's band in the past two days," the bank said.

The forint trades within a fixed 30 percentage point trading range, to keep a cap on inflation, obliging the central bank to buy euros when it hits the upper limits.

Speculators have poured capital into Hungary because of its high rates.

As a future member of the European Union, once it joins its interest rates are expected to converge with the lower rate of the European Central Bank, returning a tidy profit on government bonds for those who buy now.

No policy change

Shortly after the cut was made, Finance Minister Csaba Laszlo said Hungary would not abandon the forint's trading band.

The finance ministry is eager to keep the forint's value down to protect the export-driven economy.

"Today I consulted with Prime Minister Peter Medgyessy and Central Bank Governor Zsigmond Jarai, and the common stance of us is there will not be a band widening or shift," he said in a statement.

Traders estimate the NBH spent 4bn euros (£2.63bn; $4.22bn) defending the forint on Thursday before the rate cut.

The forint fell sharply after the cut, falling to 244.20 against the euro at 1631 GMT, from 237.00.

Further cuts are expected if the speculators continue to test the currency's limits.