Hungarian forint breaks 1.5-year record following central bank’s rate freeze

The Hungarian forint strengthened sharply on Wednesday, reaching levels not seen since early 2024 and briefly approaching HUF 381 to the euro. By early evening, the currency traded below 381.7, marking its strongest performance in around one and a half years, according to market data.

The forint’s rally began late Wednesday morning, when it climbed from above 384 to the 381 range within hours. Earlier in the day, the euro had been trading above HUF 384, but steady gains pushed the Hungarian currency to a new peak shortly before 7 PM, Telex reported.

Central bank decision reassures investors

Analysts attribute the forint’s sudden strengthening to Tuesday’s decision by the Monetary Council of the National Bank of Hungary (MNB) to keep the base rate unchanged at 6.5%, according to HVG. The move signalled the central bank’s commitment to maintaining tight monetary conditions amid continuing inflation concerns.

MNB Governor Mihály Varga reinforced this message during Tuesday’s press briefing, emphasising that Hungary’s fight against inflation is “not yet over”, suggesting that high interest rates could remain in place for an extended period. His comments appear to have reassured investors that no premature easing is expected, thus easing concerns about potential market volatility.

This reassurance helped spark the forint’s rapid strengthening: between noon and 1:30 PM on Wednesday, the currency surged from 383.4 to 381.2, a jump rarely seen within such a short timeframe.

The last time the forint was stronger than this was in January 2024.

Inflation outlook and market expectations

Despite inflation having stabilised at 4.3% in recent months, analysts widely expect the rate to fall further in the first half of next year due to strong base effects. Some forecasts see inflation potentially dropping below 3% in early 2026.

However, the MNB remains cautious. The central bank projects that, aside from occasional positive months, inflation will only sustainably return to around 3% by early 2027. This conservative outlook contributes to the bank’s reluctance to begin cutting interest rates.

The forint had previously approached similar highs in mid-November, when it briefly strengthened to 383.2 per euro. But those gains were quickly erased following reports that the government was considering a bank tax hike and expecting a larger budget deficit due to pre-election spending commitments. Those concerns temporarily weakened the currency.

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Not a regional trend

Importantly, the forint’s surge is not part of a broader regional movement. Neither the Polish złoty nor the Czech koruna showed comparable strengthening on Wednesday, according to HVG, underscoring the specific impact of the MNB’s decision and communication strategy on Hungarian markets.