Record weak forint: Hungary’s national bank is ready to fight

The National Bank of Hungary (NBH) is committed to protecting the forint. Furthermore, they even sent a clear message to the fifth Orbán government about the weakening national currency.

National bank committed to stopping the weakening of the forint

According to hvg.hu, the National Bank of Hungary considers the weakening of the forint as a serious inflation risk. They added they would take firm actions to stop negative processes. They even sent clear messages to the government highlighting that the administration could support those aims if the state budget had been in balance. 

Barnabás Virág, the national bank’s deputy governor, highlighted many times at a Tuesday press conference that they would take firm actions and use all available means to deal with processes on the foreign exchange markets endangering the country’s inflation goals.

Mr Virág said that after the national bank raised the base rate by 200 basis points on Tuesday the inflation rate continued to rise. He added that prolonged inflation risks made it necessary to continue the base-rate tightening cycle. The NBH continuously monitors developments in financial market risks and stands

ready to intervene in a decisive manner using every instrument in its monetary policy toolkit, if necessary,

Virág said. In the interest of mitigating second-round inflation risks, maintaining tighter monetary conditions for a longer period is warranted, he added. The weak forint is heating inflation through the import, he said.

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Forint reached historical lows even this week

Virág’s statements are utterly surprising since the NBH said earlier that they did not have a currency exchange goal, only an inflation target. Now they communicate that they would like to stop the weakening of Hungary’s national currency to put an end to the rising inflation. However, that correlation existed before, hvg.hu states.

On Tuesday morning, the forint reached a historical low against the USD: one dollar cost 414.3 HUF. In the case of the euro, the historical low broke last Wednesday when 1 EUR was 416 forints.

Virág mentioned the government’s budget policy many times. He said the administration could help the NBH reach its goals with a balanced budget. György Matolcsy, the governor of the NBH, criticized the previous Orbán administration for its election expenditures. He said that the allowances the government distributed in the first quarter of the year merely heated the inflation. Meanwhile, the NBH would have tried to stop it.

• Read also: Euro still 410.30 forints despite central bank’s radical bp rate hike

The government announced on Monday that they would block 416 billion HUF (EUR 1.017 bn) in the state budget. An additional 150 billion HUF (EUR 366.9 million) was taken from the ministries and institutions. 

Experts say that inflation would peak this fall at 13-16 percent in Hungary. The annual inflation rate will be 11-12.6 percent.

Source: MTI, hvg.hu