euro

Hungarian forint falls sharply as Eurozone political crisis unfolds

forint euro exchange rate money huf eur eurozone

Last Sunday’s European Parliament election led to varying degrees of political turmoil in Western Europe, with markets reacting swiftly to perceived threats. The euro plunged, but the Hungarian forint fell even more significantly, painting a bleak picture for both currencies.

The latest election results have already dealt a severe blow to the euro and European stock markets. The deep dive might not be short-lived, as neither markets nor analysts were prepared for the surge of the far-right, despite prior indications.

Analysts’ notes released since the election paint an increasingly grim outlook for the euro. The consensus is that the growing political extremism could fundamentally shake confidence in European markets, leading to asset devaluation, as reported by Bloomberg.

European Parliamentary elections shake the market

eur/huf exchange rate coins
Photo: Pixabay

This process has already started. In response to the poor election results, French President Macron dissolved the parliament and called for early elections. The Belgian Prime Minister resigned, and the German governing coalition achieved its worst-ever results. Consequently, the euro dropped by 0.5% to a one-month low against the dollar, and Western European stock markets opened the first post-election working day with significant losses.

Analysts highlight that alongside uncertainty, volatility is likely to return, putting pressure on the euro’s market. The euro hasn’t been without stress lately either. Stronger-than-expected U.S. labour market data on Friday altered expectations for the Federal Reserve’s interest rate path, leading markets to price in only one rate cut instead of two.

This could result in a persistently high base rate and a robust dollar, which would be painful for the euro. The far-right’s advance in the European Parliament raises questions about Macron’s ability to implement his economic policies in a divided parliament and the feasibility of further fiscal policy convergence among member states.

Moreover, the German governing coalition’s setback, which oversees Europe’s largest and currently struggling economy, adds to the euro’s woes.

Hungarian forint falls more sharply

forint euro exchange rate money huf eur
Photo: depositphotos.com

The Hungarian forint has fallen even more sharply than the euro in recent hours/days, despite no significant far-right surge domestically, Világgazdaság reports. However, the Tisza Party’s seven seats were a surprise on the international stage.

The forint’s decline appears to be more influenced by the dollar’s broad and prospective strengthening and Monday morning’s inflation data. May’s inflation came in at 4%, below the expected 4.2%, suggesting that the Hungarian National Bank has room to cut interest rates further, potentially weakening the forint. By 11:30 AM, the forint had dropped 0.5% to 393.4 against the euro.

There will be more excitement for the forint market this week beyond the election results. The Federal Reserve’s decision on Wednesday regarding the U.S. base rate is crucial. While markets are confident there won’t be a cut for some time, the Fed’s communication will significantly impact the forint’s near-term trajectory.

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Featured image: depositphotos.com

Bleak forecast: EUR/HUF exchange rate to remain around 400

eur/huf exchange rate coins

The EUR/HUF exchange rate is expected to hover around 400 in the near future, according to financial experts. They believe a major depreciation of the forint is unlikely unless unforeseen external factors arise. Conversely, this also means that the Hungarian currency is not expected to strengthen significantly: the price of one euro will likely remain between HUF 380-400.

As reported by DNH at the end of this May, the forint has performed particularly well in recent weeks, trading at 383.95 against the euro and 353.72 against the dollar. Now, despite the promising figures, the forint has started to weaken in recent days.

Pénzcentrum spoke to several financial experts about the future of the forint ahead of the vacation season. They anticipate no major fluctuations in the EUR/HUF exchange rate, suggesting it will likely stay within the 380-400 range.

After weeks of strengthening, the forint has lost momentum

Following a period of remarkable gains, on Wednesday morning, the forint traded at 390 against the euro, and 403 against the Swiss franc once again. A relative weakening was also seen against the dollar, albeit to a lesser degree, with the USD/HUF exchange rate currently hovering around 360.

According to Pénzcentrum, in the case of the Swiss franc, it is not the fluctuations of the forint itself, but the sustained strength of the Swiss currency that explains the sudden rise in its price.

János Nagy, an analyst at Erste, describes the forint’s recent fluctuations as a natural and typical process for the Hungarian currency.

We do not think the movements we have seen in the forint in recent days are out of the ordinary; they are completely in line with the usual pattern. There was no specific factor behind last week’s weakening, just as there was no particular factor behind the earlier strengthening. The forint continues to react intensely to movements in the EUR and USD, where there has also been no clear trend for months,” the expert told Pénzcentrum.

Expectations regarding the Hungarian National Bank’s interest rate policy, as well as those of other major central banks such as the Fed and ECB, also impact the forint, he emphasised.

forint euro exchange rate money huf eur
Photo: depositphotos.com

It is time to get used to the 380-400 EUR/HUF exchange rate

According to András Bukovszki, an analyst at CIB Bank,

“Our expectations for the forint remain unchanged. The EUR/HUF exchange rate will likely continue to fluctuate in the 380-400 range.”

János Nagy shares a similar view, stressing that he does not expect a rapid weakening of the Hungarian currency. He adds that even if the forint does weaken quickly, the Hungarian central bank may adopt a more cautious interest rate policy, which will support the currency.

“Of course, this does not exclude the possibility of periods of high volatility when we see larger swings for either external or internal reasons. It also follows from the above that exactly when the forint is strongest in a given period, i.e., when it is most advantageous to exchange, will always become clear only in hindsight.”

Similarly, Bukovszki emphasised that unforeseen (positive or negative) events can cause significant fluctuations in the EUR/HUF exchange rate, as “the forint remains the most sensitive in the region to changes in international investor sentiment.”

In any case, analysts generally do not expect the forint to experience any sudden ups or downs, which also means that it will not make any outstanding gains shortly—unless some significant external change occurs.

As for exchanging money ahead of holidays, János Nagy added that those who pay by card instead of cash can offset several forints of weakening, as credit cards usually offer a cheaper currency conversion rate than cash exchangers. Therefore, those travelling abroad may be better off paying by debit card instead of exchanging money before travelling.

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No stopping: Hungarian forint at a several-month high

The Hungarian forint continues its impressive ascent, hitting multi-month highs against both the euro and the dollar. This surge is particularly noteworthy against the American currency.

On 24 May, the forint held onto its remarkable gains, showing no signs of losing steam. The day began with the forint trading at 386.3 to the euro and 357.32 to the dollar. By just after 8 PM, it had strengthened to 383.95 against the euro and 353.72 against the dollar, marking gains of 0.63% and 0.99% respectively, Világgazdaság reports.

What’s the reason behind the strengthening?

forint euro exchange rate money huf eur
Photo: depositphotos.com

The exact catalyst for the forint’s dramatic rise is unclear, given the absence of significant macroeconomic data from either Hungary or the US on Friday. However, it appears that even minor economic indicators were enough to fuel substantial market movements.

Notably, the forint wasn’t the only currency making waves. The euro also posted a 0.4% gain against the dollar. One possible factor behind the forint’s strength is Friday’s report from Hungary’s Central Statistical Office (KSH), revealing a lower-than-expected unemployment rate of 4.4% in April. According to our article published on Friday, in absolute terms, there were 217,300 unemployed in April (which was still 100 more than in March and 27,200 more than twelve months earlier).

This lower rate suggests underlying strength in the economy, which could temper expectations for the Hungarian National Bank’s (MNB) planned rate cuts this summer. An overheating economy risks inflation, something the central bank will likely strive to prevent, according to Világgazdaság.

Forint at several-month high

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Source: depositphotos.com

Interestingly, Friday’s labour market data may primarily influence the MNB’s interest rate decisions after June. Deputy Governor Barnabás Virág mentioned at a Tuesday press conference that a rate cut might still happen in June, but thereafter, the central bank’s room for manoeuvre would narrow. Analysts point out that currency markets often price in changes well in advance, sometimes looking as far as a year ahead.

The last time the Hungarian currency was this strong against the euro was on 5th February, marking a notable milestone in its recent performance.

However, as we wrote in THIS article, despite the central bank’s cautious stance, analysts predict that the euro could exceed the HUF 400 mark by the end of the year. The consensus forecast suggests that the euro exchange rate will fluctuate between 383 and 409 HUF, with many predictions leaning towards breaching the 400 mark.

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Possible 400 EUR/HUF exchange rate amid Hungarian central bank decisions

forint euro exchange rate money huf eur eurozone

Will we see a 400 EUR/HUF exchange rate again this year? The Hungarian National Bank (Magyar Nemzeti Bank, MNB) is anticipated to continue its trend of monetary easing with a 50 basis point interest rate cut at its meeting tomorrow. This would lower the benchmark rate to 7.25%. However, according to economists consulted by Portfolio, this aggressive easing phase is approaching its conclusion. Despite the central bank’s cautious stance, analysts predict that the euro could exceed the HUF 400 mark by the end of the year.

Barnabás Virág, the MNB Vice President, told Portfolio last week that the base rate could settle around 6.75-7% by mid-year. This view is shared by market participants, who expect an imminent 50 basis point cut followed by a similar reduction in June. This would align the base rate with the mid-year target of 6.75%.

The consensus is clear: an immediate 50 basis point cut is anticipated, with most expecting a similar decision in June, although a minority predicts a smaller, 25 basis point reduction. This pattern indicates a shift towards a more conservative approach as the year progresses.

Monetary Council might opt for a larger cut

Hungarian forint national bank
Photo: FB/MNB

András Pintér from Apelso Capital notes that the central bank has been signaling a cautious approach, preparing the market for smaller steps. The market’s expectations, particularly towards the year-end, have outpaced the central bank’s plans. Therefore, in May, the Monetary Council might opt for the larger 50 basis point cut, but June could see a continuation of this trend if necessary.

The inflation trends in the services sector might concern the central bank, yet recent international developments provide some leeway for this decision. Global risk appetite has stabilised following a brief “risk-off” period in April, which is also reflected in the HUF’s exchange rate. According to Pintér, the upcoming communications will likely emphasise the nearing end of the rate-cutting cycle.

Unicredit’s lead analyst, Zsolt Becsey, highlights that the easing of public friction between monetary and fiscal policies broadens the central bank’s manoeuvring space. This flexibility is further supported by recent weak US macroeconomic data, which have bolstered expectations for three Federal Reserve rate cuts this year, benefiting emerging markets like Hungary.

The past year has seen a dramatic reduction in the base rate, from 13% to 10.75% by the end of 2023, with a mid-year target of 6.75%. This rapid series of cuts might suggest a deeper reduction by year-end, but current forecasts do not support this. In fact, the consensus points to a significant slowdown, with a year-end forecast of 6.5%.

Erste Bank’s chief economist, Orsolya Nyeste, points out that several factors, including rising inflation and the need to maintain positive real interest rates, limit further cuts in the latter half of 2024. The policies of major and regional central banks, combined with domestic inflation and fiscal conditions, will heavily influence the MNB’s remaining scope for action, which appears to be minimal.

Surge in inflation, 400 EUR/HUF exchange rate expected this year

forint euro exchange rate money huf eur
Photo: depositphotos.com

ING expert Péter Virovácz anticipates a significant inflation surge in the second half of the year, peaking at 5.5-6%. Consequently, the June rate cut might be the last in this cycle. The expected inflation rise, fiscal adjustments boosting inflation, and the monetary policies of regional central banks all suggest that the MNB will adopt a cautious and wait-and-see approach. Should internal and external conditions turn favourable, there might be room for an additional 50 basis points cut in total.

Péter Koncz from Századvég Gazdaságkutató emphasises the growing importance of imported inflation. This highlights the crucial role of exchange rate stability in maintaining price stability. However, despite these efforts, analysts seem sceptical about the HUF’s stability over the next year. The consensus forecast suggests that

the euro exchange rate will fluctuate between 383 and 409 HUF, with many predictions leaning towards breaching the 400 mark.

This indicates that the market believes that, despite the central bank’s cautious rate cuts, the regional yield convergence will not prevent the HUF’s weakening trajectory.

Therefore, even with the Hungarian National Bank’s measured approach to monetary easing, the euro is expected to surpass the 400 HUF threshold, reflecting broader market trends and economic conditions.

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Featured image: depositphotos.com

Surprising: German companies push for euro in Hungary – will PM Orbán introduce it?

Euroisation euro forint

German companies in Hungary are unsure about the future, they push for the euro introduction in Hungary and would like a predictable economic policy. They see 2024 as grim, believe that consumption will fall and struggle with a labour shortage. The German–Hungarian Chamber of Industry and Commerce’s latest business survey did not bring good news.

German-owned companies struggle in Hungary

According to portfolio.hu, the German–Hungarian Chamber of Industry and Commerce found that future economic prospects in Hungary worsened in 2024. In Hungary, 241 German companies filled out the survey’s questionnaires, while the regional number, including 14 more countries, was 1,292.

German companies struggle with weak consumption, high employee costs, labour shortage and euro-forint exchange rate swings. Automation and workers’ training cannot compensate them for the hardships.

mercedes hungary kecskemét euro German companies
The Mercedes-Benz plant in Kecskemét.

Pushing for euro introduction

Furthermore, the CEOs of the German firms believe that the predictability of the Hungarian economic policy decreases and have issues with the rule of law in Hungary, as well. In the latter category, 48% of the leaders are dissatisfied, while that rate was only 36% in 2022. Concerning the Orbán cabinet’s economy policy, the dissatisfaction rate is 60%, while it was only 41% in 2022.

Interestingly, the German company heads regard the Hungarian public administration system as one of the region’s best. Only Estonia, Lithuania and Poland precede our country in that regard. Moreover, they are satisfied with the Hungarian infrastructure, local suppliers and payment discipline.

Because of the exchange rate swings, 73% of the German company leaders would support the introduction of the euro in Hungary. That is the highest rate since 2011. However, the Orbán cabinet made it clear multiple times that they would not like to introduce the common European currency in Hungary even though it has already introduced itself in some shops and cities.

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Forint remains Hungary’s official currency. Photo: Pexels

German companies are one of the largest employers in Hungary

There are 2,437 German companies in Hungary, and German-owned enterprises dominate the country’s car manufacturing sector. Their annual investment is 2-3 billion euros, while their added value reaches 10 billion euros. 94% of the Hungarian car manufacturing sector is in foreign hands, and the rate of German companies is 59%.

German companies employ more than 220 thousand workers. That is 10% of the entire workforce active in Hungary’s private sector. In 2024, they plan an average 11% wage increase.

German pensioners
Lots of German pensioners choose to live in Hungary because life is cheaper and safer here. Illustration. Read our article HERE. Photo: pixabay

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Forint wakes to a good morning, breaks through crucial levels

Hungarian forint

The Hungarian forint strengthened against the major currencies on Thursday morning compared to early Wednesday morning quotations on the international interbank foreign exchange market.

The Hungarian currency even broke the 393 level against the euro.

The euro weakened to HUF 392.87 from HUF 393.25 early on Wednesday, shortly before 7:30. The Swiss franc fell to HUF 404.27 from HUF 405.12, while the dollar dropped to HUF 367.78 from HUF 369.44. The euro rose to USD 1.0678 in the morning from USD 1.0643 in the early evening, Pénzcentrum reports.

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Hungarian forint at 3-month low: no recovery in sight

forint bank card coin money bond finance interest rate freeze Hungarian government orbán

The forint was at a three-month low on Wednesday afternoon, and there is no telling when it will recover.

The forint started to weaken on Wednesday morning, helped by the unpleasant news of the Hungarian 2023 Q4 GDP data and the significant strengthening of the dollar alongside yesterday’s US inflation data. The EUR/HUF exchange rate jumped from near 387 to 387.7, Portfolio reports.

At 2 PM, the shortened minutes of the Hungarian central bank’s interest rate decision at the end of January were released, showing that two members of the Monetary Council had backed a 100 basis point rate cut instead of the 75 basis point cut that eventually occurred. The forint then started to fall from around 388.7 to around 389.5 in a short period of time.

The dollar rose to near the 364 level, a new three-month low for the forint.

After a fall in the afternoon, the forint recovered somewhat to below 389 against the euro only to fall again to 389.13 at 5.20 PM.

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Has PM Orbán given up on adopting the euro in Hungary?

PM Orbán

PM Orbán’s firm stance against euro adoption sparks debate among economists, arguing over its impact on growth, development, and Hungary’s economic stability.

PM Orbán: Adopting the euro is not relevant

As Telex writes, PM Orbán’s government has consistently resisted adopting the euro, frequently deferring the topic by stating it is irrelevant. This stance was echoed in 2022 by Márton Nagy, then a parliamentary nominee and now Finance Minister, who characterised the euro’s introduction as a long-term consideration, given Hungary’s economic readiness.

Recently, PM Orbán reinforced this position, arguing that adopting the euro would stifle growth and limit development, a sentiment aligning with György Matolcsy, Hungary’s central bank governor. Matolcsy previously highlighted the importance of the national currency in fostering economic stability and suggested euro adoption might only occur around 2030, pending mutual agreement between Hungary and the European Commission. During a recent press conference, PM Orbán said:

In my mind, joining the eurozone is not among the possible means of stabilisation.

PM Orbán
Photo: Facebook / Orbán Viktor

Later, the Prime Minister further explained his stance:

Joining the eurozone will undoubtedly bring stability, but it will stifle growth and take away the opportunity for development. I think in terms of this duality, which is why I propose to Hungary that it should retain the possibility of faster development, and for this we need a national currency, and not stabilise the national currency through the eurozone.

What do the economists think?

Economists remain divided on PM Orbán’s assertion that the euro constrains growth and development. Dániel Móricz of HOLD Fund Management acknowledges the flexibility an independent currency provides, particularly in responding to economic shocks through devaluation. According to him, this can restore competitiveness and soften the impact of crises, unlike eurozone nations like Greece, which faced prolonged stagnation due to the inability to devalue their currency. However, he warns that domestic currencies can also amplify risks when economic policies are poorly managed, as seen in Hungary’s 2022 fiscal and monetary challenges, leading to a sharp devaluation of the forint.

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Source: depositphotos.com

Economist Dóra Győrffy counters that the euro has not hindered growth in Baltic states, which outperform Hungary in many areas. She argues that reliance on a weak forint to maintain competitiveness traps Hungary in low-wage development. This perpetuates the middle-income trap and stifles progress toward higher-value production. Viktor Zsiday, another investment expert, critiques Hungary’s historical mismanagement of the forint, noting its prolonged weakening and increased public preference for euros. Zsiday suggests euro adoption may ultimately impose fiscal discipline and restore stability if Hungary cannot responsibly manage its national currency.

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When will Hungary introduce the euro and what effect will it possibly have?

forint euro bills

While many believe that switching to the euro will cure an endless list of problems in a country, it is not that simple. Surely, it has many benefits; a common European currency can help align economies, level the playing field in local markets, and boost global influence. However, sometimes adopting the euro can cause more harm than good. Thus, Hungary should be highly tactical and considerate about its introduction. Here is what experts say.

A myriad of advantages or a huge backlash?

As Pénzcentrum writes, many view the euro as a saviour. The advantages it brings, like aiding the development of countries and fostering fair competition in markets, are undeniable. However, it comes with its drawbacks, notably the diminishing autonomy of national economies and its impact on monetary policy. Predicting how these consequences will unfold is a complex task. Thus, it leaves economic and financial decision-makers with ‘the acid test’. This has been evident in the experiences of two neighbouring countries, Croatia and Slovakia. It also sheds light on the intricate reasons behind the delayed adoption of the euro in Hungary.

Will Hungary introduce the euro?

In contemplating the matter of autonomy, a pressing question emerges: when will Hungary witness the advent of the euro, affording us the prospect of sustaining our economic catch-up endeavours under its auspices? At the moment, the outlook appears affirmative, yet the commencement of this transformative era remains veiled in uncertainty. A conspicuous lack of clarity surrounds the timeline for the euro’s introduction. Oddly, only Poland is in a similar situation as Hungary. Romania and the Czech Republic are staunch defenders of their respective national currencies. Despite that, they have managed to delineate a date for the euro’s introduction. Presently, this eludes our country.

Providing the right background

The Hungarian National Bank (MNB) aims to join the eurozone with Hungary being a well-prepared, competitive economy, thus ensuring the uninterrupted progress of economic cathing-up under the euro’s umbrella. György Matolcsy, the President of the Hungarian National Bank, has emphasised that Hungary is not currently meeting the necessary criteria for euro introduction. Challenges include difficulties in meeting the nominal Maastricht criteria, particularly in the face of high inflation in recent years. Matolcsy highlighted:

Our inflation is higher, and our long yields are above current limits.

Major changes in the next five years

In addition, Matolcsy also emphasises the importance of learning from the mistakes of other countries. For instance, Slovakia and Mediterranean countries provide a cautionary tale. Meanwhile Baltic countries, with the right amount of patience and preparation, have been able to successfully catch up with the euro.

Matolcsy affirmed the Hungarian National Bank’s dedication to adopting the euro. He is confident that with appropriate economic strategies, the necessary level of development for a successful and secure euro introduction could be attained in the medium term. Notably, in financial parlance, the medium term spans one to five years. Matolcsy envisions that the optimal scenario for Hungary’s adoption of the euro could materialise before 2030.

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Hungarian forint falls to its lowest this year

huf forint money hungary's economy wage financial health

The forint continues the slow weakening it has started. Today, it reached its lowest level of the year so far.

The forint continued its slow weakening: on Friday morning, it was 383.5 to the euro, hvg.hu reports. The Hungarian currency has not been at this level in 2024, and the last time it was this weak was the days before Christmas.

The forint was at its highest level so far this year on 9 January, when it was 377.2 to the euro. There has been no dramatic fall since then, but the last few days have seen a slow decline.

One dollar was worth HUF 352.8 this morning, the weakest since mid-December.

There have been a number of news this week that may have investors a little worried. The Hungarian central bank hinted that it may speed up the pace of interest rate cuts. Viktor Orbán said in a radio interview on Friday morning that no further EU conditions are expected to be met, so the rest of EU funds may remain frozen.

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Will Hungary introduce the euro in 2024? Here is what Bloomberg says

Forint euro exchange rate

The leaders of the European Union, including Christine Lagarde, Chairwoman of the European Central Bank, wrote in an article that the euro bolsters Europe’s global confidence. However, Hungary, alongside some EU member states, appears content with their national currencies.

The debate surrounding the euro’s introduction in Hungary has persisted. Advocates argue that it could shield Hungarian consumers from fluctuations in the Hungarian forint’s exchange rates. Conversely, skeptics raise concerns that the euro may not resolve Hungary’s economic challenges, such as high inflation, and could constrain the government’s flexibility.

EU leaders assert that the euro made life easier for citizens in the 20 member states adopting it, facilitating price comparisons and enhancing travel and trade opportunities.

Nonetheless, certain countries express less enthusiasm for the European Union’s common currency. Despite the mandatory nature of euro adoption, some states, including Sweden, Poland, the Czech Republic and Hungary, seem disinterested. Additionally, Brussels granted Denmark an exemption from compulsory adoption. Of these five countries, Hungary is the least affluent. Meanwhile, progress toward eurozone accession is underway for some nations.

Here is when Hungary may introduce the euro

Earlier, Prime Minister Viktor Orbán acknowledged the pros and cons of the matter, emphasising current disadvantages. He said that adopting the euro could slow down Hungary’s development, as happened in the case of Slovakia. Slovakian economists counter-argued, attributing the development halt to Slovakia’s economic challenges rather than the currency change.

György Matolcsy, Governor of the Hungarian National Bank, stated in June that Hungary would consider introducing the common currency once it achieves 90% of the EU’s average development level. Eurostat data for 2023 indicates Hungary has reached 75% of the European average, one place behind Poland ( being slightly under 80%), placing our country 20th among the EU26. In 2022, Hungary surpassed Portugal, an EU member since 1986. Hungary joined the community in 2004.

Read also:

  • Central bank governor talks about euro introduction in Hungary – Read more HERE
  • Hungarian finance minister: We need to think about the introduction of the euro – Details in THIS article

Huge success for PM Orbán? Tens of billions of euros may come to Hungary soon

Viktor Orbán European Commission ultimatum

Hungary cannot access billions of EU development and RRF funds because Brussels froze those monies due to rule of law concerns. But it seems PM Orbán may get at least EUR 10 billion from the frozen assets, and the European Commission may approve that in December. That would mean the Hungarian prime minister and his party get a boost before the 2024 municipal and European Parliament elections.

According to the information of Szabad Európa, EU officials believe Hungary will get EUR 10 billion in cohesion funding in December.

Hungary is entitled to EUR 21.7 billion from that bag in the 2021-2027 period. However, the European Commission refused to grant that money because they found the Hungarian judiciary system is not independent. Therefore, they demanded reforms and seem to accept at least part of them soon. The first euro millions may start to flow into Hungary from February.

The European Commission might approve that EUR 10 billion in their 13 December session. They are expected to state that Hungary meets the horizontal eligibility criteria for cohesion funding. Another scenario is that the EC gives that opinion in writing.

That comes after the Hungarian government informally presented their solutions to the two remaining EC concerns related to the independence of the Hungarian judiciary system. Though the EC is evaluating these currently, Szabad Európa wrote that only technicalities are left before the Commission lifts the ban on euro transfers.

Billions of euros remain in Brussels

Meanwhile, the Commission will present the annual report about the rule of law measure against Hungary initiated last December. They will probably say that no considerable change happened concerning the 21 key prerequisites or super milestones. We wrote about them in THIS article.

Szabad Európa wrote that Hungarian EU minister János Bóka and his EC counterpart, Didier Reynders, would meet today in Brussels. The meeting means negotiations reached their goal.

If the EC accepts the Hungarian reforms, Hungary can get EUR 10 billion. However, Brussels will withhold the remaining 11.7 billion because of the EC’s rule of law concerns and three horizontal eligibility criteria (LGBTQ rights, independence of scientific life and migrant rights).

The Hungarian government already submitted a claim for EUR 500 million. In the first place, that money will be transferred to Budapest in February. But it might happen that millions of euros will arrive before the end of this year. Anyway, that money and the agreement will boost Hungary’s economy and the election campaign of Orbán and his party before the 2024 municipal and European parliamentary elections.

Read also:

  • Will Hungary kick the new year off with a tremendous amount of EU funds? – Read more HERE
  • Unexpected turn of events: EC sends Hungary EUR 1 billion – Details in THIS article

Central bank governor talks about euro introduction in Hungary

Euroisation euro forint

Whether Hungary will introduce the euro in the future has been a burning question ever since the country joined the European Union in 2004. However, up until now, there has not been an official statement on the probabilities of introducing the common European currency to replace the Hungarian forint. György Matolcsy, Governor of the National Bank of Hungary (Magyar Nemzeti Bank, MNB), has just answered a question from a member of parliament on the introduction of the euro.

Right level of euro maturity not reached

Péter Balassa, Member of Parliament asked György Matolcsy what conditions are necessary for the introduction of the euro that Hungary cannot meet. In his reply, Matolcsy wrote that the MNB is “committed to the successful and safe introduction of the euro in Hungary”. However, the country’s economy is “not yet at the right level of euro maturity”, he wrote, according to mfor.hu. He added that at the moment, the Maastricht criteria would not be met either. However, the central bank has developed a set of conditions for joining the euro area, consisting of several variables.

Matolcsy wrote in his response that the Hungarian central bank developed and published in 2020 a set of criteria called Maastricht 2.0. It “takes into account new real criteria in addition to the fine-tuning of the original nominal criteria”. The central bank governor believes that, considering this set of criteria, “Hungary is not yet at the right level of euro maturity”.

Nominal Maastricht criteria not met – Maastricht 2.0

He adds that in the high inflationary environment of recent years, even the nominal Maastricht criteria are not being met. This is because both Hungary’s inflation and long-term interest rate ratios are above the upper bound. The Maastricht 2.0 convergence criteria cited by György Matolcsy were published by the MNB in its publication Fenntartható felzárkózás euróval (Sustainable Catching-up with the Euro). It would also adjust the current convergence criteria.

According to Index, in the longer term, it makes sense to introduce the common EU currency. However, it should also be noted that the scope for economic policy is much narrower after the introduction, especially in response to external shocks, a senior analyst at the Oeconomus Economic Research Foundation told Index.

Finance minitry and the government’s takes on euro introduction

Naturally, several political actors also commented on the issue. Finance Minister Mihály Varga said at the end of August that it was premature to talk about Hungary joining the euro area. At the moment, “the fastest way to achieve a balanced position” is on the agenda. He also stressed that if we had the euro now, the economy would have to take far fewer risks.

Minister of Economic Development Márton Nagy also made his position clear. In May, at his ministerial hearing in Parliament, he said that the euro was not an issue in the short to medium term. He added that the government had no ambition to adopt the euro. “In the longer term, who knows,” he said. Most often, Márton Nagy pointed out that in a recession, the euro is disadvantageous for a country with such endowments as Hungary.

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Central bank’s surprising interest rate decision: forint falls

forint euro bills

As we wrote earlier today, Tuesday’s interest rate decision by the Hungarian central bank could move the forint. The Monetary Council of the central bank cut the base rate by 75 basis points to 12.25 percent. At the same time, the two ends of the interest rate corridor were also lowered by the same amount, according to a decision published on the central bank’s website.

The Monetary Council of the National Bank of Hungary (MNB) held another interest rate decision meeting on Tuesday. It decided to cut the base rate by 75 basis points, Portfolio reports. This marks a change in the pace of interest rate cuts after five consecutive 100 basis point rate cuts.

As previously expected, all options were possible, from keeping the interest rate on hold to a 100 basis point cut. The decision is a slight surprise compared to the expectations of most experts.

Read also: Forint in focus today: Interest rate decision on the table

Forint falls after MNB cuts interest rates

The Hungarian currency reacted poorly to the interest rate decision. Analysts had expected the central bank to slow to 50 basis points per month from the previous 100 basis points, but it cut rates by a larger amount, to 75 basis points. Unsurprisingly, the forint weakened slightly on the back of the stronger-than-expected easing, Portfolio notes.

In recent minutes (around 2 PM), the EUR/HUF exchange rate has reached the 383 level.

Forint in focus today: Interest rate decision on the table

forint exchange rate money

Yesterday, the forint market was very subdued due to the national holiday of 23 October. Today is the day of the central bank’s interest rate decision. The response to the decision could move the forint – and we shall see in which direction.

The forint was a minor player in Monday’s trading due to the national holiday. The euro was trading below HUF 382 shortly before 9 AM. At that time the dollar was trading around HUF 361.

Compared to Friday evening levels, these exchange rates represent a minimal increase in the forint, mfor.hu notes. At that time, the euro was HUF 382.34 and the dollar HUF 361.59.

For the Hungarian currency this week, the comments regarding the central bank’s interest rate decision on Tuesday could be important as it could trigger a weakening or a strengthening trend.

Find our reports on the National Day celebrations and commemorations below:

Hungarian forint struggles against EUR 400 exchange rate

New forint coin will appear in Hungary

For the time being, it seems to have moved a little further away from the EUR/HUF 400 level, but the forint is in a rather unstable condition.

One-month high

The forint reached a one-month high on Wednesday 18 October. In August and September, EUR was already worth HUF 395 and was close to the 400 mark. However, the limit was not met and the forint strengthened slightly.

Exports are strong and import costs have fallen thanks to the normalisation of gas prices and falling consumption.

Positive signs?

Also helping the forint is the fact that hopes are now alive again for the disbursement of EU funds. This means there is a good chance that the forint could remain stable, and if EU funds arrive, the 370 level could become a reality again, economx.hu writes.

Forint in shambles: 400 HUF/EUR may be on the cards

Forint in shambles: 400 EUR/HUF may be on the cards

Despite a promising performance in the first half of the fiscal year, the forint fell steeply over the summer. Could the end of this year bring a 400 HUF/EUR exchange rate?

Forint coaster: rolling downhill?

The forint was the fourth worst performing currency globally in the third fiscal quarter of 2023, Portfolio reports. After a temporary 2.5% strengthening against the euro in the first half of the year, the Hungarian currency has weakened by 4.4% in the past three months, underperforming both globally and regionally. Besides domestic policy, the strengthening dollar is also to blame: the forint fell by 7.7% against the greenback in Q3, outperforming only the Argentinian and Chilean pesos and the Russian ruble.

Aggravating factors

The following six key factors well explain the sudden depreciation of the Hungary currency. What makes matters worse, they will likely continue to wreak havoc.

  • The reduction of interest rates by the Central Bank of Hungary from an outstandingly high 18% to 13%, with further projected cuts in the future
  • Persistently sky-high inflation rates due to the already 700 billion HUF (EUR 1,800,356,600) overstretch of the 2023 budget.
  • Market fluctuations and negative investor sentiments as a result of possible austerity measures
  • The underperformance of the Hungarian economy, with the ongoing recession only expected to improve in Q4. Even with a positive fourth quarter, the previously planned 1.5% growth in GDP in 2023 seems unattainable at present
  • EU cohesion and recovery funds are likely to remain frozen without any agreement between the Hungarian government and the European Commission on issues of corruption and the rule of law
  • The steady strengthening of the dollar against the euro.

Gloomy outlook

Due to a strong Q1 and Q2 performance, year-long statistics show that overall the Hungarian currency is still up by 1.3%. However, the last three months of the fiscal year could see a return of the 400 HUF/EUR nightmare, Portfolio warns. Firstly, a sustained strengthening of the dollar against the euro will take a toll on the forint. Secondly, late October might bring further reduction of interest rates inflicted by the Central Bank as inflation dwindles. The end of the year will also likely necessitate answers on the volatility of the national budget and the fate of stuck EU funds.

A significant increase in the deficit target of the budget, as well as an ongoing standstill in negotiations with the European Commission, would send a negative message to markets, shaking the fragile sense of security of the Hungarian economy at its core. Cooperation with the European Commission and gradual and moderate adjustments to the budget, Portfolio concludes, would be crucial to dispel market concerns about the economy in order to remain near the 390 HUF/EUR exchange rate for the remainder of 2023.

Author: Dóra Busi

Continuous weakening: Forint cannot be saved by EU funds news

Hungarian forint

On Wednesday morning, the forint started weakening against the euro again. The exchange rate is once again hovering above 390. Despite encouraging news on EU funds and attempts to strengthen on Tuesday, there was no significant momentum.

The forint was trading around 391.15 against the euro on Wednesday morning. This meant a 0.3 percent weakening for the Hungarian currency. Yesterday, the forint tried to strengthen, with the exchange rate sinking to around 386: however, by the evening, the it was weakening again, Portfolio reports. (Read about the good news on EU funds HERE.)

The market is still primarily concerned about the rise in US bond yields, with the overseas 10-year already at 4.87%. Seeing the trend, the only question is when it will reach the critical 5% level.

The forint is now trading at around 373.5 against the dollar, while the pound is at 450.3.

Among the region’s competitors, the Polish zloty and the Czech koruna also started the day with minimal losses of 0.1 percent. In emerging markets, the Turkish lira weakened by half a percent against the dollar and the Russian rouble by 0.3 percent.

The strengthening of the US currency has not been good for the forint and other emerging market assets, Portfolio writes. Yesterday, the dollar climbed back below 1.05 against the euro and is now trading near 1.045, which represents a further 0.1% strengthening of the US currency.

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