Depreciation uncovered: Why has the Hungarian forint weakened so much in recent years?

The Hungarian forint has depreciated significantly in recent years, especially following Russia’s invasion of Ukraine. Compared to other Eastern European currencies, the forint experienced a sharper decline due to factors such as long-term central bank policies and Hungary’s geopolitical challenges. Although recent measures by the Hungarian National Bank (MNB) have helped stabilise the currency, its value remains weaker compared to its past levels, raising questions about the effectiveness of monetary strategies.

Post-invasion decline

According to an experts’ report on Telex, in the wake of the Russian invasion of Ukraine, the forint suffered a dramatic loss in value. At the start of 2022, one US dollar was worth HUF 324, but by 31 December 2022, it had risen to HUF 373. The currency hit its lowest point in October 2022, exceeding HUF 400 per dollar. While the forint has since regained some strength, it continues to underperform when viewed over a broader timeframe.

Comparison with regional currencies

When compared to other regional currencies like the Czech koruna, Polish złoty, and Romanian leu, the forint’s depreciation stands out. While all these currencies weakened during the war, none experienced declines as severe as the Hungarian forint.

Central bank policies and real interest rates

One of the primary factors behind the Hungarian currency’s weakness is the Hungarian National Bank’s monetary policy. For years, the MNB maintained low nominal interest rates, especially when adjusted for inflation (real interest rates). Between 2017 and mid-2023, Hungary’s real interest rates were often below those in the United States, reducing the appeal of Hungarian investments for foreign institutional investors. This dampened demand for the forint, contributing to its decline.