Fragile forint: Spontaneous euroisation in Hungary?

Due to the socio-economic challenges of recent years, people are trying to be more conscious about their savings. A significant part of the population has shifted from bank deposits and cash to investments. In addition, the phenomenon of euroisation in savings is gaining momentum. Thus helping to protect the value of savings by hedging against the weakening of the forint. This data was revealed by a survey commissioned by NN Insurance.

Outstanding savings rate in Hungary

Mfor.hu reported Hungary has an outstanding savings rate in the EU. According to Eurostat data, the savings rate of the Hungarian population rose from 9.6% to 19% by the beginning of 2023. This puts Hungary among the EU leaders, with only Germany (20%) boasting a better savings rate. The significant increase is mainly due to high inflation. A high-yield environment and fluctuations in the forint exchange rate have effectively forced people to make more sensible choices and more sophisticated financial solutions, in addition to reducing consumption.

New forms of savings

Recently, there has been a shift in household savings from simple bank deposits and cash towards various types of investment and self-care, including foreign currency-based schemes, in recent months. According to the Hungarian National Bank (MNB), in the first half of this year:

• Household current account deposits and cash holdings fell significantly, by 9 and 4% respectively between end-2022 and mid-2023. This is hardly surprising, given that the return on money in the bank is minimal and inflation is in double digits.
• The amount of money held in government securities and mutual funds jumped by 14 and 20% respectively over the same period.
• Meanwhile, the amount of sums held in life insurance policies offered by market operators rose by 4% and the total value of voluntary pension funds by 7%.

Rising euroisation

Hungarian households are also exposed to fluctuations in the value of the forint. The depreciation of the forint is even more dramatic when it come to years of savings. In order to be shielded from this risk, people are saving in other currencies, such as the euro. According to MNB, in the second quarter of 2021, households held HUF 368 billion (EUR 959,471,864) in euro savings. Meanwhile in the same period of 2023 they held HUF 482 billion (EUR 1,256,699,561). This is a 25% increase in euro terms, even taking into account the exchange rate change over time (from EUR 350 to EUR 370).

The phenomenon of euroisation – when people in a country spontaneously start using the euro in their daily lives – and the increased demand for euro-based savings is also highlighted by a survey by NN Insurance. 60% of respondents expressed that they would feel more comfortable and safe if they could keep their savings in euros. Therefore, providers have to keep up with this demand.

Read also:

• Watch out! New forint coin introduced – its shape is hexagonal
• Dark prophecy for the Hungarian forint: 400 EUR/HUF soon?