The Hungarian forint was in full blast on Tuesday, even peaking below the 370 level against the euro. It also reached a one-year high in the evening hours on Tuesday, hovering at 369.52. However, this strength seemed to fade by Wednesday morning when it emerged that the central bank could touch the upper end of the interest rate corridor as early as next Tuesday’s meeting.
The National Bank of Hungary (Magyar Nemzeti Bank, MNB) could touch the upper end of the interest rate corridor as early as next Tuesday’s meeting, according to an interview with the vice-president of the central bank. The market interpreted this as a sign that central bank easing could be on the cards, Index reports. After this, the forint was pushed back from 371 against the euro this morning to 375.
On Monday morning, the Hungarian currency successfully stormed the important level and climbed below 372 against the euro. With this, the Hungarian currency set a new high for the year. The forint continued to rally on Tuesday, reaching a one-year high of 369.52 in the evening hours.
However, on Wednesday morning, an interview with the central bank’s vice-president, Barnabás Virág, was published on Világgazdaság. In the interview, he said that
“extreme risk scenarios have been priced out, there is no longer a need to maintain such a large margin, so a decision on a more significant narrowing of the upper end of the interest rate corridor could be taken at next week’s Monetary Council meeting.”
Following the announcement, the forint stopped at Wednesday morning’s close to 371 against the euro, and then weakened to above 375 against the common Europea currency. It remains to be seen where the fall will stop.
The easy money in the carry trade was made and it’s going to reverse on any interest rate cuts or discussion of cuts. The strength in the forint over the past 6 months was purely due to high interest rates sucking in dollars and Euros to convert for forint interest accounts. That’s going to leave. It’s not a good situation for Hungarians because the cuts will be gradual over time but the corresponding drop in the forint will raise the cost of imported goods which is inflationary which limits how much you can cut rates. Orban has really trashed the Hungarian economy with the highest inflation rate in Europe. Hungarians are really paying for it but they are not smart enough to realize it’s their government who is to blame.
@Larry nice job on the explanation – thx
When Forint is strong, then it’s not good because of …..
When is weak again Orban is quilty.
What is good for you people?
The temporary strength in the forint was artificially caused by the Central Bank raising interest rates to extreme levels. No one in Hungary can afford to borrow money now at 18% so that is recessionary. Ideally you want stability in currency exchange and relatively low interest rates. A lower forint is good for exports but increases the price of imported goods. Look up articles about the global competition to depreciate local currency to promote export growth. More recently we have had the opposite which has been termed “reverse currency wars” to appreciate local currency to counter inflation. A little complicated but that is exactly what Hungary is doing. The problem is that inflation is still 25% in Hungary. US inflation is now 5%. The end game of reverse currency wars is widespread recession and an eventual end to inflation.