euro

No stopping for the forint even after one-year peak

money hungarian forint budget

The forint was trading at around 368.7 against the euro on Wednesday morning. That is a minimal change from Tuesday evening for the Hungarian currency. The forint strengthened to a one-year high on Tuesday, with the euro trading below 368.

In the coming days, the inflation data due on Thursday morning will be important for the forint. This morning, the preliminary industrial production data was released, which showed a particularly weak performance. This could cast a shadow over the start of the second quarter in the Hungarian economy, Portfolio explains.

Among the forint’s regional rivals, the Polish zloty started the day 0.25 percent weaker and the Czech koruna 0.2 percent weaker. In emerging markets, the Turkish lira is in a market crash this morning, down 5.5 percent against the dollar.

Positive prognosis: Forint will strengthen to 345 EUR/HUF level?

forint euro bills

If the forint manages to break through the critical exchange rate level that it has been besieging for months, it would bring along a significant strengthening of the Hungarian currency.

The domestic currency has strengthened markedly since last October’s very weak performance, when the EUR/HUF exchange rate was 435. Since March, however, the lowest point of the forint was 400 against the euro. In April, the forint reached the important level of 370 and has remained close to it since, not going above 380, napi.hu writes.

The significance of the 370 level is that it had been the weakest level for almost two years after March 2020. It had “held” the exchange rate for several occasions. It thus became a strong support for the forint from a technical point of view. In the months before the war, when gas prices rose sharply as a result of Russian manipulation, it slightly exceeded it, but remained close to it, napi.hu recalls.

The third try of the forint

In April, the forint first moved towards strength, followed by a sharp bounce back to 378. In May, the exchange rate tried again to break the level, holding between 368-370 for several days, but a second sharp bounce ended the attempt again. We wrote about this fall in detail HERE.

eur/huf exchange rate 05 06 2023
The EUR/HUF exchange rate at 9.50 PM on 5 June 2023.

Of course, the outcome is not yet known. However, there is something to note here, is a typical process in technical analysis and is often seen in various liquid, high-turnover assets (stocks, currencies, gold). In cases like this, the exchange rate bounces back three times from the strong level, but the fourth attempt is successful and is usually followed by a very strong further move, napi.hu explains.

If a similar situation were to occur for the forint, i.e. a breakthrough is not possible now, but it is possible next time, the EUR/HUF exchange rate could fall to 345, as this the next important level.

Of course, if a breakthrough is achieved now, there could still be a fair recovery.

Will Hungary ever see the euro as its currency? The governor of the Hungarian central bank talked about this recently, read his stance HERE.

Central Bank governor talks about Hungarian euro introduction date

Hungary central bank governor Matolcsy

György Matolcsy talked about the issue in the public broadcaster Kossuth Rádió yesterday. He said Hungary would have to join the eurozone sooner or later. He added that date will not come before 2030. He highlighted Europe would be successful in the coming decade, and Hungary should not miss that.

Matolcsy said he has a good relationship with Christine Lagarde, the French president of the European Central Bank. He added he sympathises with the president’s work, portfolio.hu wrote.

He said the Americans did not like the idea of the euro in 1999. Therefore, they conducted a secret warfare against it. Therefore, one of the achievements of the common European currency is that it survived the past decades. As a result, the euro has become the second “global currency” behind the USD.

Concerning Hungary’s accession to the eurozone, he said, sooner or later, it will be inevitable. However, the Hungarian central bank believes the the euro introduction would only be favourable when Hungary’s economic development level reached 90 percent of the EU’s average. Otherwise, such a decision would be irresponsible, just like in the case of Slovakia and Greece.

Governor: fiscal balance needed

Hungary may reach that development level by 2030 or a bit later. Then it would be worth it to join the eurozone. He said, during the COVID crisis, the central bank intervened several times and could help the Hungarian economic growth significantly. Without the forint, such successes would not have been possible. He praised the work of the European Central Bank during the COVID pandemic but added Hungary needed the extra only the independent Hungarian monetary policy could provide.

He highlighted the Hungarian government had to reestablish the fiscal balance broken in the last three years. He added that Hungary should be part of every EU development and economic program in the future because Europe will advance successfully in the 2020s.

Hungarian forint may weaken soon: when should we buy currency?

forint exchange rate money

Throughout the week, the forint firmed significantly, nearly approaching the 370 thresholds against the euro. According to experts, the Hungarian currency may only creep back to as low as 365 per euro if positive news emerges regarding the EU funds.

Unfortunately, it is more likely that the Hungarian currency will further weaken in the coming months. This makes the current exchange rate ideal for converting HUF to EUR. While major European stock exchanges performed poorly this week, the Hungarian BUX index soared, writes Index.

 Teetering performance of HUF

On Monday morning, the forint was trading nearly at 374 to the euro, but on Tuesday, it underwent sharp fluctuations. The Hungarian currency initially began to strengthen after the National Bank of Hungary (MNB) cut its one-day deposit tender rate by one 100 basis points. The momentum of the forint persisted until the end of the week, almost reaching the 370 thresholds. However, according to analyst Zoltán Varga, the Hungarian currency may only reach a rate as low as 365 against the euro if positive news emerges regarding EU funds.

On Saturday at 10 AM, one euro was worth around 371 Hungarian forints. Analysts do not expect any further significant strengthening. For this reason, it may be an ideal time to exchange euros while the common European currency is valued at around 370 forints. The long-term weakening of the forint is almost inevitable. Several analysts expect the euro to reach around 400 by the end of the year. During Thursday’s Government Info press conference, Minister of Finance Mihály Varga revealed that they are calculating a euro exchange rate of 385 forints by 2024.

Favourable real interest rates

According to Barnabás Virág, Deputy Governor of the Hungarian Central Bank, real interest rates will turn positive by the end of the year. The supportive fiscal policy and regulatory measures against inflation driven by profits are expected to lead to a decrease in inflation. To sustain this in the medium term, policies that boost productivity need to be pursued. Virág believes that in the second quarter, deflationary trends have emerged and will continue to strengthen, resulting in a decrease in both overall and core inflation.

“In several sectors, not only have price adjustments stopped, but prices have also dropped. In April, there were already several price reductions, especially in product categories exposed to the foreign exchange market,”

said the deputy governor.

Hungarian central bank’s today decision may give a death blow to the forint – UPDATED

Hungarian forint state budget historic lows

As we wrote earlier, Hungary’s central bank is expected to cut the one-day quick deposit rate to 17 percent from 18 percent. Since the bank’s measure aimed to boost the value of the forint in 2022, a possible reduction may result in a significant forint-weakening.

According to portfolio.hu, the Hungarian forint was moderately strengthening on Monday, so much so that it reached the 374/EUR exchange rate. It is important progress because last week’s second half saw considerable forint devaluation against the EUR and the USD. As a result, the Hungarian national currency could make up for some of the losses it suffered last week.

Today the focus of the investors will be on the central bank’s decisions and their subsequent communication. The market expects the Hungarian National Bank’s monetary council to start an interest rate-cutting period. For instance, Morgan Stanley projected a 100 base points cut. Consequently, the one-day quick deposit rate will fall to 17 percent from 18 percent. However, the base interest rate is not expected to change. On the contrary, it will remain the highest in the region (13 percent).

Central bank decides the future of the forint

That means the government and the central bank agreed to practically freeze the credit market in Hungary. Needless to say, nobody prefers to apply for a loan with such a high-interest rate. As a result, the Hungarian property market froze, and it is unlikely to revive until a significant base interest drop occurs. However, the central bank cannot do that if it wants to protect the forint. Besides, the Orbán administration does not want another forint/EUR peak either, like the one that occurred in autumn 2022 when one EUR cost more than 430 forints.

Currently, forint stands at 374.4/EUR and 346.5/USD. Yesterday was a day of strengthening, so we hope today will bring another boost, following the decisions of the Hungarian national bank. Weak forint only benefits the export as well as those Hungarians who work in Austria or Slovakia where they receive their salaries in euros, but it’s bad news for everyone else. Weaker forint largely contributes to the soaring inflation, which is the highest in Hungary in the EU, exceeding 25 percent. And that is just the tip of the iceberg. The food price inflation, for instance, is much higher, more than 45 percent on average. Many people, therefore, do their weekly grocery shopping in Slovakia, where they can pay with euros. We reported on this new consumer trend HERE.

UPDATE – Big announcement expected from the MNB governor

According to Pénzcentrum, György Matolcsy, the governor of Hungary’s central bank (MNB), will hold today’s press conference about the interest rate modification. The media outlet argues that may mean Matolcsy will share a big announcement. The press conference will start at 3 pm.

Are Hungarians investing more money outside of the country?

euro money chinese loan fine

There is a common claim nowadays that more and more Hungarians are keeping their money abroad, or at least in foreign currency. A new investigation was started to verify if this is true or not.

Official data from the Hungarian National Bank (MNB) confirms that the volume of foreign savings among the Hungarian population increased significantly over the past two years. However, the proportion of these savings remains below 10 percent. The strengthening of the Hungarian forint at the beginning of the year also may have disappointed many, writes Portfolio.

Domestic market

Due to high inflation, there has been a significant reshuffling in the Hungarian savings market in the first quarter of this year. The Hungarian population has shifted their savings from current account deposits and cash towards government securities and investment funds. While more money flowed into these investment accounts, the intensified search for yield has not been enough to preserve the stability of savings.

Foreign markets

We have less information on savings held in foreign currency or abroad. However, it can be observed how much money the population holds in:

  1. foreign bank deposits
  2. foreign bonds
  3. foreign investment funds
  4. foreign currency

In this regard, there has been a significant growth in 2021 and 2022. In the former for investment funds and in the latter for deposits, bonds, and currency.

Last year, a net amount of 531 billion Hungarian forints flowed into foreign deposits, 241 billion into foreign bonds, and 117 billion into foreign currency. At the end of March this year, Hungarian households held 12 percent of their deposits, 4 percent of their bonds, 12 percent of their investment funds, and 7 percent of their cash in foreign currency or abroad. The average across these four categories was 8.6 percent.

Is it worth it?

While these ratios are higher than they were, the first quarter of this year did not prove fruitful. Especially not for those who later plan to use these savings in forint. Contrary to the expectations of many, the forint strengthened. This resulted in a loss of approximately 4.8 percent in the value of savings held in euros between December 31st and March 31st.

The value of foreign deposits decreased by HUF 91.7 billion, bonds by HUF 6.6 billion, foreign investment funds by HUF 13.7 billion, and currencies by HUF 25.8 billion in the first quarter. With the exception of investment funds, these declines can largely be attributed to the strengthening of the forint. This phenomeon seems to have had an impact on currency exchange offices and bank branches as well, as the volume of currency purchases decreased in January and February compared to previous months.

No stopping: Hungarian forint at a new low

forint exchange rate money

The Hungarian forint ended Thursday’s session with a significant weakening against the euro. Friday did not start well either: we soon saw another multi-week low for the forint.

Yesterday, we wrote about the inevitable weakening of the Hungarian currency. Just like clockwork, the forint started weakening not long after we published our article. There has been no stopping ever since then: at the time of writing of this article, the EUR/HUF exchange rate stands at 378.46.

This means that the forint is almost one percent weaker compared to last night alone. According to Portfolio, there are several reasons for this:

  • First of all, the dollar strengthened yesterday as expectations of a Fed interest rate hike strengthened again.
  • The Hungarian currency was supported by the 370 level. It was unable to fall significantly below it.
  • Some investors may close their positions out of caution ahead of Tuesday’s interest rate decision.

When the EUR/HUF exchange rate reached 377.85, it was already clear that

we haven’t seen such a low for the Hungarian forint since 26 April.

Hungarians still don’t trust the forint: they buy outstanding amounts of foreign currency

forint euro bills

EU-record Hungarian inflation led to a surge in people buying foreign currency at the beginning of the year. Hungarians took advantage of the strengthening forint to buy large amounts of currency in the first months of 2023.

Huge amounts of foreign currency

Taking advantage of the strengthening of the forint at the beginning of the year, Hungarians made large purchases of foreign currency, writes BiztosDöntés.hu based on data from the National Bank of Hungary (MNB). According to the central bank’s statistics, people bought HUF 48.7 billion worth of euros and HUF 11 billion worth of dollars from currency exchanges in the first two months of the year.

Experts haven’t seen this since 2015

Such a strong start to the year has not been seen since 2015. 30 percent more euros and nearly three-quarters more dollars were sold in January and February this year than in the same period in 2022, said Péter Gergely, the site’s financial expert. According to statistics recorded by the central bank since 2010, January’s HUF 28 billion of euro withdrawals is the fifth highest figure, he said.

A good way to fight inflation

According to Péter Gergely, the heightened interest in currency purchases may be due not only to the strengthening of the forint, but also to the fact that inflation in euro is significantly lower. Thus, many people may think that they would rather keep their savings in euro than lose a quarter of their purchasing value in forint in a year.

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Forint breaks psychological barrier, strengthening to long unseen level

money hungarian forint budget

The forint strengthened against the euro to a level not seen for more than a year in the early afternoon on Wednesday.

At the time of the writing of this article, one euro costs HUF 369. The last time the exchange rate was below 370 was at the end of February last year, around the outbreak of the Russian-Ukrainian war, Telex reports.

On Tuesday evening, the euro was quoted at HUF 371.45. Meanwhile, on Wednesday at around 5 PM Hungarian time, the exchange rate stood at HUF 369.21. This may be due to the moderation in domestic inflation, as reported by the Hungarian Central Statistical Office (KSH) this morning, and better-than-expected inflation data in the US, according to Portfolio.

The last time we saw a similar strengthening was in mid-April. Just like now, international sentiment was the main driver behind the forint’s soaring performance. In April, the Hungarian currency weakened back to its previous level within a few hours. There is a chance that this will happen again. However, breaking the 370 barrier is still an important development.

New euro introduction date set in Hungary? It is surprisingly close

Euroisation euro forint

We wrote earlier this week that Hungary might meet the Maastricht criteria for adopting the euro by the end of 2024. Furthermore, Hungarians support the idea of introducing the euro. Therefore, mfor.hu, a Hungarian business news outlet, lamented whether Hungary may use the euro from 2027.

Károly Csabai, the editor-in-chief of the Hungarian business news outlet, wrote that the head of the Fiscal Council, Árpád Kovács, who said on Thursday that Hungary might meet the Maastricht criteria for introducing the euro by 2024, is a professional, not a political delegate. He supports that claim with the fact: Mr Kovács received a leading position regardless of the government.

Under the Socialist Horn-cabinet, he became the head of the State Audit Office of Hungary and remained in that position until 2009 despite two government changes. In 2012, the second Orbán cabinet elected him chairman of the Fiscal Council. Thus, his thoughts are worth listening to and reading. He said this week about introducing the euro that the inflation in Hungary would fall below 3 percent by 2024 summer, while the state debt would be below 70 percent of the GDP. Furthermore, the state budget deficit will decrease to 2.9 percent by then. The Maastricht criteria contain four stability requirements: prices, state budget, interest rate and currency exchange rate.

Here is the possible date of euro introduction in Hungary

Kovács has been monitoring the state of the Hungarian economy from the perspective of introducing the euro for years. And if he says Hungary meets the criteria by next year-end, it means we may join the eurozone in 2027 since a 2-year-long transition period is required. Interestingly, many Hungarians already use the euro. Since the EU currency is used in 20 out of the 27 member states, Hungarians living in Slovakia, Croatia, and Slovenia already use it. That concerns hundreds of thousands of people.

However, Mr Csabai added in his article that the Orbán cabinet would not like to introduce the euro. The government regularly communicates that it is not a Hungarian interest. György Matolcsy, the head of Hungary’s national bank, said that under the current conditions, Hungary did not need the European currency. The Hungarian government believes they need forint for Hungary’s economic catch up.

Forint has been devaluing since 2010. That is good for the international competitiveness of the goods produced in Hungary. But swings in the forint’s exchange rate does harm business players, Mr Csabai highlighted. Furthermore, if the forint begins to fall, the national bank defends it with higher interest rates. But that generates inflation harming citizens. Neither the central bank nor the government would like to change their opinion about introducing the euro. That means until Orbán governs Hungary, the forint will remain despite its vulnerability.

The Euro could come to Hungary in 2024

euro money

Hungary may meet the Maastricht criteria for adopting the euro by the end of 2024, the head of the Fiscal Council said on Thursday.

Whereas inflation was 25.4 percent in February, it could drop to around 3 percent by summer 2024, Árpád Kovács told the assembly of the Fejer County Chamber of Commerce and Industry in Székesfehérvár, in central Hungary. Public debt relative to GDP will fall well below 70 percent by the end of next year, and the budget deficit is expected to be around 2.9 percent, he added.

GDP growth is projected to be around 1 percent this year, before rising to 3.5-4 percent in 2024, Kovács said. Inflation will fall below 10 percent by the end of this year, and forecasts indicate a significantly better inflationary environment next year, he added.

Hungary ranks at the top of the bottom third of European Union countries in terms of GDP per capita, ahead of Portugal and Slovakia, among others, and could move into the midfield by 2029, Kovács said.

Hungary’s nominal GDP has been growing since 2020, and not just because of inflation and a rise in output, he said, adding that GDP was set to reach HUF 78,000 billion (EUR 207.8bn) this year.

Some shops deceive their customers by using only euro prices in Hungary

Euro forint exchange

There are multiple shops in Hungary which use only euro prices, which breaks the relevant laws. A reader of 24.hu bought earrings in the Etele mall, 11th district of Budapest, in an Australian jewellery shop, Lovisa. She found its price only in euros, but at the cashier’s desk, she realised the company calculates with a brutally high forint/euro exchange rate. Here is what you should know about such issues.

According to 24.hu, one of their readers bought earrings in the Australian-owned Lovisa jewellery shop in Budapest’s Etele mall. However, on the price tag, she found only a euro price. She calculated 400 HUF/EUR, which is realistic since shops regularly use a higher exchange rate than the official. The latter is around 372/EUR at the moment.

However, at the cashier’s desk, the shop assistant told her she must pay HUF 5,295 for the earrings even though they cost only EUR 11. That means the shop calculated a 481/EUR exchange rate, which is brutally high. The forint has never dropped that low against the EU’s national currency. The historic high was around 435/EUR last year.

Interestingly, on the invoice she received after the purchase, the price was only in forint. She asked around the shop how they calculated the HUF price but received no answer. According to the shop assistant, the HUF price tag fell off, but she saw no price tags on the ground. After checking out some other products, she realised that there were many tags without a HUF price. HERE you can check out some photos she made about the products. In some cases, there is a HUF price, while in other cases, there is not.

Marking the prices only in foreign currencies is illegal in Hungary

She wanted to talk with the manager but received no contact and could not find the company’s phone number or email address. The mall could not help her out with that either. Therefore, she reported the case to the consumer protection authority.

According to 24.hu, that is not the only shop in Budapest or Hungary which do not use HUF prices. Budapest’s consumer protection agency confirmed that, in Hungary, pricing in HUF is compulsory. The shop must indicate the sale price and the unit price in forint. That rule applies to the service fee, too. If a shop allows customers to pay in other currencies, they must mark the exchange rate visibly.

Interestingly, a shop does not need a phone number, email address or Hungarian website in Hungary. However, they have to mark their name and seat visibly. That practice makes it difficult for the customers to file a complaint.

Lovisa has not replied to 24.hu’s questions concerning the issue.

Future of Hungarian forint still uncertain

money hungarian forint budget

Slowly but steadily, the crisis of the Hungarian forint is coming to an end. After a year of constant volatility, the currency is now becoming more and more stable. Having survived the panic created by the bankruptcy of numerous important financial institutions in the last 2 months, a steady 370-380 EUR-HUF exchange now seems like the most probable outcome for the near future.

However, this apparent stability is upheld by strict measures taken by the Hungarian National Bank (MNB) to protect the forint from collapsing. These have been in place for several months now. While they successfully defended the currency, they are causing damage in other economic areas. Having recognised this, the monetary council of MNB started loosening the restrictions placed on the forint. With the easing of these measures, can the Hungarian forint stand on its own legs? Or will this cause just more volatility, Index asks.

The beginning of the end

Russia’s invasion of Ukraine last year put the HUF through the wringer. Now, after months of strict decisions to stop the inflation of the currency, the recovery begins.

On 25 April, the MNB began the lifting of restrictions. They cut back the upper limit of the interest rate corridor by 450 basepoints. While this in itself is not a drastic change, it is a sign that the loosening of measures has started.  We can now expect more to come in the next months.

“Considering the decisions taken by MNB and the way they communicate, market players may get the idea that the central bank will handle the beginning of the interest rate reduction carefully,”

said Sándor Jobbágy macroeconomics analyst.

While the original shock caused the HUF to devaluate, by Saturday noon, it has regained its strength. At the time of the writing of this article, one euro cost HUF 373.

Careful decisions

And careful they have to treat it. The decisions taken in the next few months will drastically influence the future of the Hungarian currency.

If the lifting of restrictions is too fast and too drastic, it is possible that inflation will start increasing again, as more money floods the market. If they come too late, however, it can cause long-lasting problems for the entire economy, as investment and consumption drop.

Capital market expert Márta Balog-Béki is optimistic about the Hungarian currecy’s future. She believes that the reduction in the prices of energy, the weakening of the US dollar and the decision made by the central bank to not start lowering interests too early all contributed to the current stability.

While the forint is not expected to get any stronger than it is right now, that could change soon. If the Hungarian government reaches an agreement with the European Union, that will cause a large amount of euros to flood the market, possibly further strengthening the HUF.

Hungarians want euro, the government does not: spontaneous euroisation happens

forint euro kató alpár fotó

The Hungarian forint is one of the most vulnerable national currencies in the world, which is very sensitive to the changes in the global and regional economy. Though the Hungarian central bank could baulk a spontaneous euroisation last year-end, the majority of Hungarians would like to introduce the euro to replace the weakening forint. But is that possible, and would it be beneficial for the people?

According to portfolio.hu, the government has not been communicating about the euro introduction even though Hungary has been an EU member for 20 years, and even Romania wants to adopt the euro by 2026. Croatia introduced it this year, while Slovakia and Slovenia (and the Hungarian communities living there) have been using the common European currency for years. As a result, hundreds of thousands of Hungarians receive their salaries and pay their bills in euros in the neighbouring countries. More than 1 million will soon join them from Romania in 2026. But Hungarians living in the motherland seems to remain using the forint.

The forint has been introduced in 1946, and contrary to other nations, Hungarians love it. That is probably because the new currency was based on the people’s work. There was no help from abroad because the Communist block refused to accept the USA’s Marshall Aid.

Spontaneous euroisation in multiple segments of the Hungarian economy

Portfolio argues that the Hungarian government and economic policymakers try to belittle the advantages of introducing the euro. Meanwhile, a spontaneous euroisation is already happening in the Hungarian economy. Business owners and companies calculate in euros. Furthermore, many households put their savings in the EU’s common currency.

The Hungarian people are “europositive”. In 2022, based on a survey carried out by the Eurobarometer, 69 percent of the respondents supported the introduction of the euro. That rate is 77 percent in Romania. Meanwhile, Bulgarians, Czechs, and Swedes are much more sceptical. The figure is below 50 percent in those countries.

Hungarians believe that, provided they used the euro, the inflation would not be EU champion in Hungary. Thanks to the protective measures of the central bank last October-December, the euro introduction due to the historic forint-weakening of 2022 was postponed. But many think they need a less vulnerable currency.

Furthermore, it seems the central bank will loosen the strict monetary policy it has been following since last October. And that may trigger a new wave of forint weakening. The Hungarian government sticks to the idea that Hungary should not use the euro until it reaches at least 90 percent of the EU’s development level. However, that may never happen, portfolio.hu argues.

Central bank’s surprise knocks back the Hungarian forint on Wednesday morning

forint exchange rate - daily news hungary

The Hungarian forint was in full blast on Tuesday, even peaking below the 370 level against the euro. It also reached a one-year high in the evening hours on Tuesday, hovering at 369.52. However, this strength seemed to fade by Wednesday morning when it emerged that the central bank could touch the upper end of the interest rate corridor as early as next Tuesday’s meeting.

The National Bank of Hungary (Magyar Nemzeti Bank, MNB) could touch the upper end of the interest rate corridor as early as next Tuesday’s meeting, according to an interview with the vice-president of the central bank. The market interpreted this as a sign that central bank easing could be on the cards, Index reports. After this, the forint was pushed back from 371 against the euro this morning to 375.

On Monday morning, the Hungarian currency successfully stormed the important level and climbed below 372 against the euro. With this, the Hungarian currency set a new high for the year. The forint continued to rally on Tuesday, reaching a one-year high of 369.52 in the evening hours.

However, on Wednesday morning, an interview with the central bank’s vice-president, Barnabás Virág, was published on Világgazdaság. In the interview, he said that

“extreme risk scenarios have been priced out, there is no longer a need to maintain such a large margin, so a decision on a more significant narrowing of the upper end of the interest rate corridor could be taken at next week’s Monetary Council meeting.”

Following the announcement, the forint stopped at Wednesday morning’s close to 371 against the euro, and then weakened to above 375 against the common Europea currency. It remains to be seen where the fall will stop.

Hungarian forint continues to rise, annual euro peak reached

money hungarian forint budget

The Hungarian Forint (HUF) has made an incredible comeback on the international currency market. After a year of tumultuous and drastic price changes, it looks like the HUF is about to stabilise. As of 17 April 2023, the price of the euro (EUR) has almost edged up to where it was one year ago.

The economic and trade crisis which followed Russia’s invasion of Ukraine in March 2022 challenged the stability of HUF. The price of one euro increased all the way to a little bit over 430 forints. This made the Hungarian currency one of the worst-performing ones in the region. Since December however, the forint has started to strengthen exponentially. As we wrote before, while the bank closure crisis in the US in March took its toll, the HUF drew close to achieving the same strength it had just one year ago. The question arises: to what length can this go on, writes Portfolio.

What made the forint so strong?

We can pinpoint several different factors which helped the forint gain back its previous strength. One of the most important ones is the decisions made by the Hungarian National Bank (MNB), the central bank of the nation. To combat rising inflation and help stabilise the currency, the Monetary Council of MNB steadily raised the reference interest rate all the way up to 18 percent in October. This rate is much higher than the ones other EU member states set.

This decision put faith in international businessmen and made the HUF a valuable currency to invest in. On one hand, such a high-interest rate lowers the investment ratio, as it becomes more expensive to afford loans and loan payments. This leads to reduced economic growth or even shrinkage. On the other hand, reduced investment rates and loans help combat inflation and encourage foreigners to buy HUF, as such a high-interest rate makes it profitable for them to keep their savings in forint.

Another important factor that contributes to this exponential rise is the international economic climate. The strengthening of the American Dollar (USD) helped the HUF, which reacts well to such changes. The fact that the Hungarian government managed to reach a settlement with the EU and did not lose (all) the money that could help kickstart the economy again also contributed to increased trust in the HUF and its potential.

How long can this last?

According to experts, while the strengthening of the forint is dazzling, it is reaching its physical limits. They argue that while the high reference interest rate put faith back into the Hungarian economy, the fall in energy prices was also needed for this achievement. As we could see during the banking crisis in March, the forint is still very vulnerable to external forces. Unfortunately, this is not something we have control over. This means a huge risk in the future.

One expert, Zoltán Török expects the HUF to drop a little bit below 370 a euro, but not reach down to 350. The changes in the price of energy might bring the strengthening to a halt at any point. He believes that by the end of the year, one euro will cost around 380-400 HUF.

Another professional, Orsolya Nyeste estimates this value at 370-390. She believes that the Hungarian economy is unable to live with an 18 percent reference interest rate in the long run. We can already see the negative side effects, if inflation drops, the MNB will have to reduce it, she added.

Read also:

The Hungarian forint may soon hit a euro record!

forint euro bills

The forint is showing sustained strength, helped by an increasing number of factors. The forint collapsed during the US banking crises in March, but has since regained strength. It is now close to its strongest level this year. Several factors have emerged that could even allow it to reach a top.

The forint is showing sustained strength and is being helped by an increasing number of factors, napi.hu reports. Even this year’s peak may be on the way.

The Hungarian forint is being supported

The most important stabilising factor in March was the Hungarian Central Bank’s (MNB) strong stance on exchange rate stability after the interest rate decision meeting. MNB indicated that strong fluctuations in the forint exchange rate were unfavourable. They also noted that a weakening of the forint would hamper the decline in inflation, which is the main economic aim of the government for this year. So, they were doing their utmost to ensure that this did not happen.

In addition to the support from the central bank, a fundamental factor has emerged. There was a large surplus in February’s external trade in goods, thanks to the expansion in exports, napi.hu explains. In the longer term, the exchange rate is mainly influenced by the balance of payments. The external balance of goods and services is an important part of this. Another important factor is that Hungary’s main export market, Germany, has also weathered the crisis.

Cooperation between the central bank and the government

In recent months, the forint market has been disturbed by the disagreement and tension between the Hungarian central bank and the Orbán-cabinet. Now, however, György Matolcsy, Governor of the Central Bank, and Mihály Varga, Minister of Finance, held a personal meeting. They even issued a statement on the cooperation between the government and the central bank.

Another positive point in terms of the exchange rate was a figure from the Energy Ministry showing that gas consumption fell by 25 percent in the first quarter. This is also positive for the exchange rate, because although the price of gas is now a fraction of last year’s, a quarter less gas has to be imported than a year earlier.

Annual high against the dollar is done, is the euro record coming?

The exchange rate has already reached an almost one-year high against the dollar, which we reported in detail here. However, this is also due to the weakening of the dollar against the euro. The forint exchange rate against the euro is a significant figure, as the bulk of the country’s external trade is in euros. A new annual peak against the euro would be reached at a stable level of 370. That is a change of only HUF 4 per euro compared with the exchange rate on Friday morning.

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Central bank’s decision sent the Hungarian forint soaring

money hungarian forint budget

Tuesday saw a brisk rise in the Hungarian forint. The central bank’s communication played a big role in this. It seems that exchange rate stability has become an important priority, which also plays a prominent role in curbing inflation in Hungary.

The central bank’s decision was good for the Hungarian forint

On Wednesday morning, the forint fell below 380 against the euro for the first time since the banking crises interrupted the earlier strengthening trend, napi.hu reports. In addition to the general market calm, the strong message from the Hungarian central bank (MNB) most likely played a major role in this.

At Tuesday’s interest rate decision meeting, the MNB did not change its monetary conditions (we wrote about this in detail here). What is more, Vice President Barnabás Virág stressed that the 18 percent interest rate on overnight deposits is justified for the time being. Meanwhile, the 13 percent level of the base rate cannot be considered low either.

The forint’s role

The stability of the forint will play an important role in bringing down inflation. A weaker domestic currency also tends to make imports more expensive, thus increasing prices. However, the extent of this depends on the role of imports, napi.hu writes.

One of the main drivers of current inflation has been last year’s energy price explosion, especially in the case of natural gas. The price in euro is now roughly double what it was in previous years. However, the forint is now much weaker and gas is predominantly imported. Thus, the forint exchange rate plays a crucial role in the domestic price of gas. This in itself justifies the need for a stronger forint exchange rate.

Positive prospects?

Recognising this, the exchange rate has become an important priority for the central bank’s monetary policy, and Tuesday’s interest rate decision confirmed this. During the few weeks of banking panics, it was clear that if there is turmoil and uncertainty in the developed world’s financial system, the forint will be the first to collapse.

As a result, the chances have increased that the forint exchange rate will be stable. It may even return to the strengthening trend that started at the end of last year.

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