Last week, we had to give 400 HUF for 1 EUR. On Monday morning, we had to pay 383 Hungarian forints for 1 Euro, but the Hungarian currency strengthened during the day. In the afternoon, we could buy 1 euro for “only” 371 HUF. Today this rate is 1:372, so it seems that the downward spiral of the Hungarian currency has stopped. However, experts are not calm. Here is why.
According to Magyar Nemzet, the war caused the forint’s weakening in the last few weeks. However, those selling forint and buying foreign currencies disappeared from the market so forint has the chance to stabilize. The government-close paper argues that the forint started the year well, and experts hoped this tendency would remain in 2022. However, the increasing tension between Russia and Ukraine and the Russian invasion
forced the forint into a downward spiral.
Hungary was not alone in the region with that problem. The same happened to the Polish zloty and the Czech koruna.
Magyar Nemzet says the state of the Hungarian economy did not explain that trend. The weakening of the regional currencies was caused by investment funds that started to sell their regional financial assets, including Hungarian ones. Afterwards, they converted the received money to euro and USD. Therefore, regional currencies weakened, while the euro and USD got stronger. Forint reached its new nadir last week when 400 HUF cost 1 EUR. After that its value started to increase. The trend was the same in the case of the Czech koruna and Polish zloty.
The question is whether the forint will return to the previous 340-370 HUF/EUR zone or remain in the 370-400.
Magyar Nemzet argues that, provided nothing unexpected happens in the war, the forint value will remain around 370. Furthermore, the government-close daily say if the new measures of the national bank will be successful
the Hungarian currency might strengthen.
Ákos Péter Bod, co-leader of the united opposition’s economy cabinet, thinks differently. The former chairman of the Hungarian National Bank believes that the forint will remain in the 365-400 zone because the Hungarian economy is very dependent on Russia’s energy export. He added that nobody should wait for a 330 HUF/EUR currency exchange rate in the future.
Hungarian economist Zoltán Pogátsa said that the inflation in Hungary would be double-digit and even above 20% in the case of food. He added that the reason behind it was partly the election expenses of the government that generated unnatural demand in the economy. He cleared that the cut of utility fees is making a significant loss in the state budget. That is because the gas price increased threefold after the war. Taxes reestablish the balance, but the system is not sustainable.
He said that the 400 HUF/EUR currency exchange rate meant the government lost control over the forint.
He said that the reason behind the downward spiral was the country’s energy politics as Hungary is the most dependent EU state when it comes to Russian gas and oil. The dependence is almost 100% currently, he highlighted. Furthermore, the government sticks to Paks 2 and wants it to be built by the Russians. Therefore, the country’s dependence will only grow in the future. As a result, investors think that the Hungarian market is risky, which the market incorporates in the exchange rate.
Mr Pogátsa believes the government should calm the markets with an energy policy change.
That would be the only way to stabilize the forint in the 330-360 zone. Pogátsa said that he did not see such plans in the opposition either.
He cleared that introducing the euro would not mean higher stability. For example, the Baltic states that use the EU currency faced higher inflation than Hungary in the previous years. Inflation will remain a national phenomenon, he concluded.
Source: mandiner.hu, Magyar Nemzet, szeretlekmagyarorszag.hu, index.hu