This is why Hungarian forint is the most vulnerable in the region

Compared to the regional foreign currencies, the Polish zloty (PLN), the Czech koruna (CZK) or the Romanian leu (RON), the Hungarian forint performed badly this year. That is because of multiple economic and political reasons and the distrust towards the Hungarian currency. A Hungarian news outlet argues that without an agreement about the EU funds and a balanced budget, the future of the forint remains dark.

Historic lows

This week was not the strongest for the Hungarian forint. It broke several historic low records against the main foreign currencies, the EUR, the USD and the Swiss franc (CHF). The currency exchange rate of the EUR is above HUF 423, while this sum is HUF 434 in the case of the USD. Compared to this January, the forint weakened by 14.6 percent against the EUR and 33 percent against the USD, Világgazdaság said.

Meanwhile, the regional competitors, the PLN, the CZK and even the RON performed much better. Their currency exchange rate stagnated against the EUR. For example, the Polish zloty weakened by only 6 percent against the EUR. Moreover, against the dollar, their value decreased by 15-23 percent.

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Vulnerable forint

The media outlet refers to Dávid Németh, a leading analyst of the K&H bank, in its article. He says that there are no new factors behind the weakening of the forint. The new historical lows were the consequences of the increasing distrust towards the HUF.

Németh argues that Hungary really needs an agreement with the European Commission about the EU funds to stabilise the currency exchange rate of the forint. Furthermore, the rising energy bills also weaken the forint because they destroy the trade balance and the current account. In other words, we have to pay an increasing sum of money for the same amount of energy. Moreover, the economic prospects are uncertain. That is because a recession in the next period is likely, Németh added.

Compared to the regional currencies, the Hungarian forint performs worse because of Hungary’s risk perception caused by the higher import rate, energy dependence and lower credit rating. Furthermore, Hungary’s foreign currency reserves are also lower than Romania’s or Poland’s. Therefore, investors are wary.

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An agreement with the EU is needed

The Baltic sea pipeline leaks did not help the forint, as well. Németh says that in the case of a growing international risk aversion, hazardous currencies suffer the most. In the Central-European region, that is now the forint.

The Hungarian National Bank’s (MNB) decision this week about increasing the base rate did not help. The market expected the MNB to end this year’s base rate hike cycle after the agreement about the EU funds.

All in all, in the short term, the key is the agreement. Meanwhile, in the longer term, Hungary must restore balance indicators.

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Source: Világgazdaság