Expert: The forint will inevitably weaken soon, 400 EUR/HUF level expected again

István Al-Hilal, the CEE regional leader of Fidelity International, talked about the future of the Hungarian national currency in an online professional event organised by OTP Private Banking. He suggested the Hungarian forint will remain “strong” until the central bank keeps the base interest rate high. However, the bank cannot hold that this high forever. Therefore, a weakening is inevitable soon.

As we wrote before, the Hungarian forint is among the most popular currencies among foreign investors. That is because its exchange rate against the euro and the USD decreased significantly in the last few months. The end of 2022 was a period of historic lows against the main foreign currencies. For example, the euro broke even the psychological barrier of 430.

However, the central bank intervened and raised the base interest rate considerably. Furthermore, some good news started to come about, releasing at least some of the frozen EU development and RRF money. Even though there is no significant approach in the latter issue, the investors seem to have priced the Hungarian economy policy and the forint. Therefore, the exchange rate started to get better this January, and now it stands around 370/EUR.

We wrote HERE about the consequences of the Turkish elections on the national currencies of the different emerging countries, including the forint. Last Sunday’s elections did not decide Erdogan’s fate. There will be a second round on 28 May. But it seems that kind of uncertainty did not shake the forint. Experts thought it would because the forint is vulnerable to a global crisis. And a change in Türkiye (or the continuation of Erdogan’s unorthodox economic policies) would certainly trigger one.

Forint will start weakening after a base interest rate cut

Mr Al-Hilal said at OTP Private Banking’s conference that the Hungarian central bank introduced a very high base interest rate last year to help the forint. He highlighted it is very high compared to the developed markets and the CEE region. He added that when the Hungarian economy’s fundaments were better, the government kept forint value low, due to economic reasons. Portfolio does not mention those, but we think about boosting foreign trade and increasing Hungary’s competitiveness among the possible investors.

Now the economy’s fundaments are worse, so the result would be a weaker forint. However, that is also disadvantageous politically. Therefore, the central bank raised the base interest rate. But there should be a rate cut soon. Afterwards, Mr Al-Hilal believes the forint will weaken back to 400/EUR. Provided the central bank does not cut the base interest, rate the Hungarian economy will be in a recession. We wrote HERE that the property market in Hungary is frozen party because of the high interest rates resulting from the high base interest rate.

István Al-Hilal believes the central bank will carry out significant cuts soon. He also reminded the amount of state bond owned by foreigners, peaked at a historic high, being above HUF 7,000 billion (EUR 18.77 billion).

We wrote in THIS article about some bank cards in Hungary you should be careful with.