Hungarian National Bank prior to serious decision: forint may start plummeting on Tuesday

Half Hungary would like to get a glimpse of what György Matolcsy, the governor of Hungary’s national bank, will decide about the base rate this Tuesday – this is how mfor.hu, a Hungarian economic-focused new outlet starts its article in the issue. Tomorrow’s decision will play a key part in how the forint’s exchange rates will shift. And that affect not only tourists, investors and the people of Hungary but also the state budget and expenses.

According to mfor.hu, Hungary’s monetary policymakers faced a crisis last year when the annual inflation rose to 20 pc while the Hungarian forint started to lose its value rapidly. Therefore, they began crisis management following the textbooks. They increased the quick deposit rate from 13 pc to 18 pc. Thus, the quick deposit rate became five percent higher than the national bank’s base interest rate.

The change helped forint but did not affect the inflation, which continued to increase and showed 25.7 pc in January. After January, the inflation rise started to moderate while the forint stabilized at 370/EUR. Therefore, in May, the national bank began cutting the quick deposit rate by 100 base points. Now, the one-day deposit rate is 14 pc, only one pc higher than the base rate. Károly Csabai, the author of the mfor.hu article believes that tomorrow, the national bank will cut 100 base points again, so the base rate and the quick deposit rate will meet again.

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Inflation to decrease significantly

Zoltán Varga, the senior analyst of Equilor Investments Ltd, agreed with that but reminded that following the latest monetary council cut, bad news came from the Hungarian economy. Thus, decision-makers may accelerate the rate cut pace, but the analyst does not believe it will happen. That is because the main goal is to reduce the inflation. And that is a success story since in July its rate was below 20 pc for the first time since last September, Világgazdaság wrote.

Analysts believe the national bank would accelerate the process only if inflation began decreasing significantly. Furthermore, a more significant cut may collapse the foreign exchange rate. Mr Varga said that the forint is stable on the monetary market, and could always correct after sways in the exchange rate. But he said that volatility would remain high. Furthermore, he believes that the forint’s weakening trend will also remain. However, exponential weakening is highly unlikely, provided there were no external shocks. That is because the markets already priced the expected quick deposit rate decreases.

Read also:

• Orbán: Economic growth fell quite badly in the second quarter – Read more HERE
• Hungary’s forint among the world’s best currencies: what does the future hold?

Forint maintined volatility

In THIS article portfolio.hu collected the opinions of seven senior analysts about the expected base rate changes between August 2023 and December 2024. The median of their expectations is that by next December, the base rate will be 6.5 pc, which will help the currently frozen crediting in Hungary. Furthermore, portfolio.hu believes that by December, the inflation will be around 7-8 pc in Hungary. Thus, they think the national bank will decrease 100 base points again in October (quick deposit rate and base rate).

Péter Koncz (Századvég Konjunktúrakutató) said the base rate reduction program might be slowed down by the increasing energy prices or the lack of EU funds. Therefore, they expect a high 12 pc base rate by December 2023, while other analysts wrote 10.00-10.5 pc.