Hungarian National Bank will decide the forint’s fate on Tuesday: collapse or strengthening?

The Hungarian National Bank may decide about a base interest rate cut again this Tuesday. A cut would probably not result in an exchange rate collapse, but it would break the Hungarian currency’s strengthening. Experts believe that Tuesday may mark a considerable change in both directions.

Forint strengthened a bit last week

According to index.hu, the forint strengthened a bit this week. It started at 392/EUR and finished at 391/EUR. That is because of the positive international atmosphere, and the EUR-USD currency exchange rate, which is on a 4.5-month peak.

Because of the weaker dollar, the forint tried to break the 390/EUR level on Thursday, Dániel Molnár, a senior analyst of the Makronóm Institute, said. The dollar began to decrease because the markets started to expect three consecutive base rate reductions (September, November, and December).

Meanwhile, the euro ran out of strength because the markets believed the European Central Bank (ECB) was planning a base rate cut. As a result, the euro weakened, and the forint could strengthen.

The Hungarian forint we are all proud of. But bad news always hit it hard. Photo: depositphotos.com

Forint strengthening was trend-like

Zoltán Varga, a senior analyst of Equilor Befektetési Ltd, said the forint may occupy the 387-397/EUR level against the euro and the 355-365 level against the dollar.

The forint’s strengthening follows a trend, Zoltán Árokszállási, the director of the MBH Analyst Centre, highlighted. The reasons are both international and domestic. First, the euro strengthened against the dollar. The only opposite change was due to the IT glitch collapsing international air traffic for days. That worsened investor sentiment and resulted in the strengthening of the dollar.

Árokszállási said there was a connection between the slightly stronger forint and the Hungarian government’s budget adjustment decisions moving towards restoring balance.

How will the Hungarian National Bank decide?

The forint’s fate is in the hands of the Hungarian National Bank this week. The markets calculate with a 25 base points reduction. The last time they did so was on 18 June, and since then, the financial and economic environment has become more favourable. For example, headline inflation was reduced to 3.7%. The government announced budget balance restoration, FED’s cut will be higher, and the ECB is also expected to cut base rates.

György Matolcsy, the governor of the Hungarian National Bank. Photo: FB/MNB

That is why the Hungarian National Bank is expected to cut 25 base points in July, keep the interest rate level in August and may continue the rate cuts in September.

Mr Árokszállási said a base rate cut may not result in the collapse of the forint. But it will probably derail it from its strengthening course. He added that the bank’s and the Monetary Council’s statements will also play a key role on Tuesday because international investors’ concerns about inflation are still present.

Will it be worth more or less? Photo: depositphotos.com

Read also:

• Among the region’s currencies, the Hungarian forint lost the most value in 20 years – Read more HERE
• The EU reveals when Hungary could join the eurozone