With all the ups and (mostly) downs recently, the Hungarian forint has become one of the weakest currencies not only in the region – in Central and Eastern Europe – but in the whole world.
In a year, only the Turkish lira and the Argentine peso have fallen more. On top of that, in the last three months, apart from the Chilean currency, the forint has been the weakest in the whole world, Portfolio.hu reports.
Since the beginning of the year, the forint has weakened by almost 7.5 percent against the euro. This cannot be explained merely with the difficult global economic environment, a war in our neighbourhood and high inflation. These are problems that affect our regional competitors in the same way, Portfolio.hu writes.
At the beginning of March, the record low level of the forint could be blamed on the war, but since then something else has been the problem. In three months, the forint has weakened by 8.4 percent against the euro, while the Polish zloty has depreciated only by 1.1 percent and the Czech koruna by 1.2 percent.
Until early May, the forint moved broadly in line with the Polish zloty, and that was when the split began. If we take a look at the events of the last two months, we might find the reasons why the Hungarian currency has been plunging. Portfolio.hu has gathered these events:
– In April, the European Commission launched a rule of law procedure against Hungary, and no agreement has been reached on the disbursement of EU funds.
– The market was not fully satisfied with the government’s fiscal adjustment package, which is partly based on special taxes that send a negative message to the business environment.
– The deteriorating fundamentals of the Hungarian economy are becoming increasingly apparent, especially the external imbalance, with the balance of payments and external trade balances both turning strongly negative.
– The dollar has strengthened: the US currency has gained 7% against the euro in three months. And the forint follows the dollar’s movements in the opposite direction, meaning that when the US currency strengthens, the forint usually weakens.
The bad news is that these negative effects are not yet abating, and there is no sign of them improving.
Source: Portfolio.hu, vg.hu