Hungarian forint the weakest this year; decline may continue due to national bank decisions

The Hungarian forint was the weakest this week in January, but more decline may come because of the Orbán cabinet’s policy changes.

Forint may continue to decline

The Hungarian forint reached its lowest this week in 2024 because of two main reasons. One is the fall of the regional currencies, while the other is that the markets started to price a future considerable base rate cut that can reach even 100 base points.

The forint started this week from a 382/EUR level, dropping to 388/EUR on Wednesday and Friday. That marks a three-month low. One of the minor reasons was that the government modified the rules concerning the excess profit taxes of the Hungarian pharmaceutical companies. Later, the finance minister and Richter both said the market misunderstood the new rules, but that could not ease the struggle of the Hungarian national currency.

Next Tuesday and Wednesday may decide about the future of the forint. On Tuesday, the Hungarian National Bank is expected to cut the base rate by 100 points. On Wednesday, the US Federal Reserve will decide about the base rate, which will also affect the Hungarian currency – index.hu wrote.

Meanwhile, Mihály Varga, Hungary’s finance minister, said that “the time has come for yields and the base rate to decline.” That may result in the forint’s ongoing depreciation.

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Orbán cabinet: strict fiscal policy needed further to push inflation below 5%

The government’s strict fiscal policy should be continued to push average annual inflation below 5 percent, the finance minister told a conference on Saturday.
In his speech at the iCon economic policy conference in Sopron, in north-west Hungary, Mihaly Varga said that inflation fell to 5.5 percent in December from 25.7 percent in January. The trend is expected to continue this month, he added.

In monetary policy, “the time has come for yields and the base rate to decline.” The government also aims to bring deficit down from 6 percent to 3 percent, possibly over 2 years to avoid adverse consequences on growth and unemployment, he said. This year, deficit is expected to be in the 4-4.5 percent range, he added.

Meanwhile, EU funds worth some 520 billion forints (EUR 134.5m) have been disbursed to Hungary since December, the ministry cited Varga as saying. The government is expecting another 2,500 billion forints in 2024, he added.