Decisive days: Forint may get a punch next Tuesday after weakening

After the last period’s strengthening, we almost forgot about the forint’s historic lows in 2022. However, it seems nobody can settle. In the second half of this week, the national currency began to fall following some remarks of the Hungarian foreign minister concerning EU help for Ukraine. Forint may receive a decisive punch tossing it farther down on that slope next Tuesday.

According to Tőzsdefórum, the forint has been at a one-year peak against the euro this week, but by Friday, it weakened a lot. Currently, the exchange rate is at 375/EUR. However, on Tuesday, the Hungarian central bank may introduce some interest rate cuts, which can result in a free fall.

The Hungarian forint is still very vulnerable. Its currency exchange rate is affected not only by global changes but also by domestic economic policy modifications. We wrote about the government’s latest decisions about blocking the payment of EUR 500M for Ukraine. That resulted in a decrease. Furthermore, the USD started to strengthen again, so the USD/HUF rate is around 350.

The meeting of central bank governor György Matolcsy and finance minister Mihály Varga, allegedly adversaries in the issue, helped since they agreed to cooperate.

Forint in trouble

However, investors focus on next Tuesday’s central bank monetary council decisions. According to the expectations of Morgan Stanley, the National Bank of Hungary will cut 100 base points. As a result, the one-day quick deposit rate may decrease to 17 percent (it stands now at 18 percent). The new one would still be the highest in the region but can mean a capital withdrawal and a forint exchange rate fall.

Barnabás Virág, the central bank’s deputy governor, said the base interest rate and the one-day quick deposit rate would meet in autumn at the earliest (13 percent). High interest rates are attractive for investors to keep their money in forint, which helps increase the national currency’s value.