Hungary’s central bank has stepped in to curb the rapid strengthening of the forint after the currency surged to levels many analysts believe are too strong for the country’s economy and exporters.
The sharp appreciation followed the landslide election victory of the Tisza Party, which significantly boosted investor confidence in Hungary’s economic outlook and policy direction. However, economists now warn that a persistently strong forint could create new challenges for businesses and economic growth.
Central bank acts to weaken the forint
Over the past month, the Hungarian currency strengthened by around 8% against the euro, while its annual gain reached more than 11%. In recent days, the exchange rate briefly moved below HUF 355 per euro, a level considered highly unfavourable for export-oriented Hungarian companies, whose revenues are largely earned in foreign currencies.
In response, the Magyar Nemzeti Bank (MNB) introduced a technical rate cut on Tuesday. Although the base interest rate remained unchanged at 6.25%, the central bank reduced accepted offers in its euro liquidity tenders, effectively lowering real forint interest rates by roughly 50 basis points to 5.25%.
The move immediately weakened the currency slightly, with the euro climbing from around HUF 356 to above HUF 359. According to analysts at CIB Bank, the forint’s rise had become excessively rapid compared to the actual performance of the Hungarian economy, writes Népszava.
Confidence boost after political shift
Mariann Trippon, chief analyst at CIB Bank, said investor optimism after the Tisza Party’s election victory played a major role in the strengthening trend. Markets appear to expect a more stable and predictable economic policy environment under the new government.
At the same time, Trippon noted that the forint has appreciated by nearly 10% in real terms over the past two years, despite productivity growth remaining essentially flat. Such a rapid adjustment, she argued, is difficult for Hungarian companies to adapt to.
She also suggested that the era of the forint’s long-term weakening may have ended, although the central bank is likely to resist any further excessive strengthening. Additional interest rate cuts could therefore arrive in June or July if market conditions allow.
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Stable exchange rate expected
The new government has also signalled that it does not prioritise further forint appreciation. Finance Minister András Kármán recently indicated that reducing government bond yields matters more than reflecting economic convergence through the exchange rate itself.
Despite the recent rally, CIB Bank expects the forint to stabilise in the coming months. The bank forecasts an exchange rate of HUF 363 per euro by the end of this year and around HUF 366.6 by the end of 2027, which would effectively mean long-term exchange-rate stability after inflation is taken into account.
Analysts added that Hungary still faces significant economic challenges, including high budget deficits, rising debt levels and the need for long-term reforms in education, healthcare and infrastructure.
K&H Bank’s chief analyst about the Hungarian euro, the forint’s bright future and the rising inflation
Featured image: depositphotos.com
