forint

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.

forint huf
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

Read also:

 

Breaking: Hungarian central bank cuts interest rates further, forint reacts – UPDATE

forint hungarian central bank minimum wage loans

As expected, the Hungarian central bank continues to slow down: it cut the base rate by 50 basis points to 7.75%, after a cut of 100 and then 75 basis points.

Hungarian central bank slows down

This continues the cycle of interest rate cuts, but at a slower pace than in previous months. According to Portfolio, monetary easing could come to a complete halt from the middle of the year.

Hungarian forint national bank
Photo: FB/MNB

The Hungarian central bank announced in March that it plans to cut interest rates by 50 basis points from April, slowing the pace of interest rate cuts from the 75-100 basis points of recent months. According to Portfolio, the slowdown is understandable from several points of view:

  1. The period of rapidly declining inflation has ended. From May onwards, the inflation rate is likely to remain above the central bank’s target range of 2-4% until the end of the year.
  2. The forint failed to stabilise at a stronger level, with the exchange rate against the euro stuck above 390, which worsens the inflation outlook.
  3. Interest rate cuts have brought yield levels in the region within reach, and Hungary’s risk premium relative to developed markets (especially the US) has continued to narrow.

As InfoStart reports, speaking on the sidelines of the last policy meeting, Barnabás Virág, vice-president of the central bank, said that the “rapid-action phase” of monetary policy has come to an end, with the pace of interest rate cuts slowing down in the second quarter and monetary policy entering a new phase.

How did the forint react?

forint hungarian central bank
Photo: depositphotos.com

On Monday, the forint ended the day around the opening level. On Tuesday, it started with a slight weakening, then dipped below the 394 level. After the 50-point cut, the exchange rate against the euro stands at around 393.50.

Information from the Hungarian News Agency (MTI)

The Council also decided to lower the symmetric interest rate corridor in tandem, bringing the O/N deposit rate to 6.75 percent and the O/N collateralised loan rate to 8.75 percent.

At the previous policy meeting in March, the Council cut the base rate by 75 basis points to 8.25 percent.

“The outlook for inflation warrants further reduction in the base rate at a slower pace than earlier,” the Council said in a statement released after the meeting. “The volatile risk environment continues to warrant a careful and patient approach to monetary policy,” the policy makers added.

The Council noted that the slower pace was in line with the start of a “new phase” in April and said any further reductions in the base rate would be taken “in a data-driven manner”.

At a press conference after the meeting, NBH deputy governor Barnabás Virág said the slower pace of easing was justified by the inflation outlook and increasing risk aversion. The volatile risk environment requires a “careful and patient” approach to monetary policy, he added.

He pointed to “strong and broad-based” disinflation, but said market services were “falling slowly” from a high level, a development the Council was following with “special attention”.

He said that preserving financial market stability “remained a priority”.

Virág noted that slowly dropping service price inflation was a general trend in the global economy.

He acknowledged the positive impact on Hungary’s risk assessment of historically high international reserves and an improving current-account balance, but said worsening international sentiment had driven risk premia on Hungarian assets higher in the recent period.

Fielding questions about the base rate horizon, Virág said there was “no place to rush”, adding that policy makers would take decisions “from month to month” that were appropriate based on the freshest macro data and global financial market assessments.

He said that inflation could rise temporarily from the middle of the year and that policy makers would have to weigh policy decisions “very cautiously” in the second half of the year, when room for further rate cuts could be “very limited, based on information available at present”.

He said the 50-bp cut was the only option discussed at the meeting and the decision on the reduction was unanimous.

Read also:

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.

Read also:

Forint exchange rate: Hungarian currency at an alarming 6-month low

forint exchange rate - daily news hungary

The forint exchange rate hit a dramatic milestone this Tuesday, not witnessed since the beginning of October. It’s been affected, in part, by the crisis in the Middle East.

Világgazdaság.hu reported that the forint depreciated to a six-month low against the dollar at the beginning of the week, with one dollar fetching HUF 372.5. Additionally, the euro-forint exchange rate has also surpassed 390, approaching 395 on Tuesday.

The sterling performance of the dollar greatly impacts the forint exchange rate

Foreign exchange markets may be feeling the strain as the yield on the 10-year United States government bond rose to a record high this year, currently standing at 4.6 percent. The stellar performance of US bonds applies pressure to foreign exchange markets. Furthermore, for investors, the recent better-than-expected growth in the retail sector forecasts a sustained increase in interest rates in the United States.

In addition, the reduction in investor risk-taking due to the crisis in the Middle East also bolsters the dollar’s performance. Világgazdaság.hu suggests that if tensions were to ease in the Middle Eastern region, investor appetite for risks may increase, leading to a favourable turn for the forint exchange rate.

The Hungarian forint has some stormy months behind it

As we reported in multiple articles, the Hungarian forint experienced turbulent months at the onset of 2024. In February, it plummeted at a rapid pace, with the EUR/HUF exchange rate reaching 394, and the USD/HUF depreciating to 362, following interest rate cuts by the Hungarian Monetary Council.

It hasn’t helped the forint exchange rate that György Matolcsy, Governor of the Hungarian National Bank (MNB), sharply criticised the Hungarian government in March this year, alleging that Minister of Economic Development, Márton Nagy, was deliberately trying to undermine the central bank’s independence.

The dispute between the two institutions, largely rooted in the personal feud between Matolcsy and Nagy, hasn’t bolstered investor confidence in the forint. Consequently, economists cautioned that escalating tensions between the National Bank and the government could result in discord in effective policymaking, further weakening the forint exchange rate.

As we wrote in this piece, “analysts at the Egyensúly Institute [an independent Hungarian policy think tank – ed.] have forecasted that the Hungarian forint will likely remain above the 400/EUR threshold in 2025.”

Read also:

Horror at Hungarian petrol stations: price rise continues with petrol at 6-month high – HERE

Big change: 50,000-forint notes to be introduced? Central bank governor answers – Read HERE

Big change: 50,000-forint notes to be introduced? Central bank governor answers

forint euro bills

Előd Novák, a politician of the far-right Mi Hazánk Mozgalom (Our Homeland Movement), asked the Governor of the Central Bank of Hungary when a 50,000-forint banknote would be introduced and the 5-forint coins withdrawn in the country. Here is the governor’s answer.

Just last week, we reported on the Mi Hazánk initiative to ban Coca-Cola drinks from the Hungarian Parliament because he feels that public money should not be spent buying the products of a company that “supports the LGBTQ+ lobby”.

This time, the representative of Mi Hazánk asked Central Bank Governor György Matolcsy about the future of the Hungarian forint, index.hu writes.

When are they willing to withdraw the inflated 5-forint notes and introduce the 50,000-forint ones?,

Novák wanted to know.

György Matolcsy’s written response was published on Friday. In it, he highlighted that since the central bank found no disturbances or conditions requiring its intervention in the currency circulation cycle, it will not withdraw or introduce any new currencies.

The 50,000-forint banknote is not coming any time soon, it seems.

“The central bank determines the denomination composition of banknotes and coins in circulation on the basis of complex criteria that take into account the operation of all actors in the cash supply chain, in which special weight is given to the analysis of retail payment methods and the examination of the role of individual means of payment in circulation,” Matolcsy wrote in his reply.

When will a 50,000-forint banknote be available in Hungary?

Photo: depositphotos.com

Portfolio highlighted seven main points from Matolcsy’s answer that justify why new banknotes are not being introduced.

These are the following regarding the withdrawal of the 5-forint coins:

  • although inflation has an effect on the purchase value of individual denominations, it has had a negligible effect on the population’s payment habits in the last two years;
  • the share of individual coin denominations in circulation has been stable for more than a decade;
  • the definition or change of the denomination structure affecting the whole of society cannot be based on a narrow analysis of the current value of metal prices, as their volatility is high.
Hungarian forint
Photo: FB/MNB

The governor of the national bank explained the following regarding the introduction of the 50,000-forint banknote:

  • according to data from the National Tax and Customs Administration of Hungary, in 2023, there were 2.23 billion cash payment transactions completed, the average value of which was only HUF 3,597;
  • large-value payments are usually not paid in cash, and the Instant Payment system available for these transactions provides a fast and reliable platform for people;
  • accordingly, the use of cash is common for lower-value transactions, which does not justify the introduction of new, high-value denominations.
  • And finally, in 2023, the amount of HUF 20,000 banknotes in circulation decreased by 0.7%. Only the amount of 500 and 1,000-forint notes circulated increased significantly, by 5.1% and 5.8%, respectively. Inflation, therefore, heightened the demand for lower-value denominations, not increasing the demand for higher-value banknotes.

As we summarised HERE, the last major changes the Hungarian currency saw were in 2008 and 2009, when the National Bank of Hungary decided to withdraw the 1- and 2-forint coins from circulation, as their production cost was higher than their value. Furthermore, since 2009, 200-forint banknotes have been changed to become coins, as well.

Read also:

  • What is happening here? Hungary’s budget deficit almost reached its full-year target by the end of March – Read HERE
  • Fiscal slippage: Rating agency issues warning to Hungary – HERE

Expert: Quality of food in Hungarian shops often worse than in Western Europe

Shopping Hungary long weekend retail

According to an expert, the quality of food sold in Hungarian shops is often worse than those sold in Western Europe. The best way for businesses to cut prices is to produce lower-quality products or reduce package sizes: which is what’s happening in Hungary.

Average price level of food and beverages in Hungary lower than EU average

cba shopping food hungary
A CBA store in Hungary. Photo: MTI/Balogh Zoltán

Zombor Berezvai, an assistant professor at Corvinus University of Budapest, told Agrárszektor that “we are not doing well in international comparison,” adding that the Hungarian food industry is generally less efficient and productive than its regional competitors. However, he also added that in general, it is misleading to say that food is more expensive here than elsewhere.

This is supported by Eurostat data, which clearly shows that the average price level of food and non-alcoholic beverages in Hungary is still significantly below the EU average, namely 90% of it. The article recalls that the Hungarian National Bank (Magyar Nemzeti Bank, MNB) has repeatedly pointed out that the efficiency of the Hungarian food industry lags behind the productivity of major European countries, which undoubtedly makes products produced in Hungary more expensive.

Everything is more expensive in Hungary than elsewhere – or is it?

Vegetable prices in a Hungrian Spar
Photo: Daily News Hungary – Vivien Rima ©

Moreover, the Hungarian food industry faces a higher interest rate environment if it wants to invest or develop, Agrárszektor explains. This is exacerbated by high VAT levels and the volatility of the forint against the euro and the dollar. In many cases, companies react to the latter by expecting a higher exchange rate because they do not want to lose profit due to unpredictable exchange rate movements.

Indeed, this does not only affect imported products but also domestic products, which adjust their prices to competing imports, due to competitor-oriented pricing. These would justify products costing more at home than abroad. However, even if firms produce more expensive products, and even if VAT is higher in Hungary and the exchange rate is less favourable, if they reflect this in their prices, it will significantly reduce demand.

Lower-quality products, smaller packaging

Shopping Hungary long weekend retail
Shopping in Aldi, Hungary. Photo: Daily News Hungary

“This is where demand-driven pricing, consumers’ purchasing power and willingness to pay enter the picture,” the expert said. According to him, this may be why prices for many products do not end up being higher in the country. However, the only way for companies to reduce prices is to produce lower-quality products or reduce package sizes.

“I think the former is the reason why the quality of many products in Central and Eastern Europe – and therefore in Hungary – is lower than in Western Europe, and why the size of packages is often smaller and smaller. That’s just how things add up,” concluded Zombor Berezvai.

Read also:

Fuel price record high in Hungary while forint strengthens

Fuel prices in Hungary

Good Friday saw a record-high fuel price in Hungary, while the forint started to strengthen, which is good news for the Hungarian economy.

Fuel prices record high in Hungary

According to 444.hu, the average price rise of gasoline was HUF 28 just in March. Fuel has never been this expensive in 2024. Based on holtankoljak.hu, the average gasoline price in Hungary rose to HUF 641 today (EUR 1.63) per litre, while that number is HUF 645 (EUR 1.64) in the case of diesel. The former’s price rose by HUF 3.

In March, we paid HUF 28 more for gasoline, a 4.57% surge in just one month. Gasoline cost “only” HUF 570 at the beginning of this year. In January, that went below HUF 562. That means gasoline prices increased by 12.5% in just three months in Hungary.

fuel Gas station petrol

Gasoline was this expensive last September when its average price per litre was HUF 647. Not considering the era of fuel price caps, which distorted free competition and increased fuel prices for cars not having a Hungarian licence plate, gasoline was the most expensive last September with HUF 662/litre.

In the case of diesel, the price rise is more moderate. Compared to the 1 January price, it is “only” 8.8% higher. In March, its price stagnated around HUF 641 and 648 (~ EUR 1.65).

Hungarian fuel prices are not competitive in Central Europe

Fuel prices regularly increase before the summer season in Hungary. Diesel tends to be more expensive than gasoline in Hungary. The last time the two products were this close to each other was last August.

MOL fuel shortage Hungary
Photo: facebook.com/mol.magyarorszag

Of course, the prices above are average costs. For example, holtankoljak.hu found cheaper products in Érd and Csepel (Budapest’s 21st district), where you can buy fuel for less than HUF 610. Moreover, Auchan’s fuel station network offers gasoline for HUF 617. However, those products might not contain that many additives.

In the region, fuel prices are much lower. For example, in Romania, you can fill your tank with gasoline for only HUF 570/litre. In Poland, the price is below HUF 600, and the Croatian (HUF 612) and Serbian (HUF 630) are also much below the Hungarian level.

Márton Nagy, Hungary’s economy minister, met with the leaders of MOL and the Hungarian Petroleum Association in February and asked them to ensure fuel supply for a competitive price.

MOL fuel station
Photo: Creative Commons

Good Friday for the forint

Meanwhile, Good Friday brought favourable news for the Hungarian forint. According to portfolio.hu, its exchange rate is approaching the 390/EUR level. Currently, it stands at 393.82/EUR. The Hungarian forint also strengthened against the USD and is now standing at 365.05.

forint money currency
Source: depositphotos.com

Read also:

  • Hungarian one-day motorway vignette’s official date and price out, details in THIS article
  • One of the region’s most expensive fuel prices is in Hungary, rising again on Wednesday – Read more

Featured image: depositphotos.com

Hungarian National Bank to decide the forint’s fate next Tuesday: plummet may follow

forint hungarian central bank minimum wage loans

The Hungarian forint has lost a lot of its value recently. The Hungarian National Bank started a base interest rate decrease program. That helps the Hungarian economy’s revival by boosting the credit market. At the same time, it results in the weakening of the Hungarian national currency. Next Tuesday may mark another step towards a weaker forint since the National Bank’s Monetary Council will decide about another base rate cut.

According to index.hu, the forint started this week at 393 against the euro and finished on Friday above 397. That was because the National Bank reported a EUR 213 million deficit, which was below expectations.

On Wednesday evening, the forint began to strengthen again thanks to the Fed’s decision about the American base rate. The dollar weakened, and emerging currencies like the forint strengthened.

The national bank’s cut can be either 50 or 75 points

The Hungarian National Bank believes that June 2024 is the first possible date when the Fed would decrease the American base rate. That may be followed by additional minus 25 points in every quarter. That can help the Hungarian economy and the forint, Márta Balog-Béki, a senior analyst of the MBH Elemzési Centrum (MBH Analysis Centre), said.

Hungarian forint
Photo: FB/MNB

On Thursday and Friday, the Hungarian forint continued to weaken due to the strengthening of the USD against the EUR.

György Matolcsy’s Hungarian National Bank will make the most important decision on Tuesday. Zoltán Varga, a senior analyst of Equilor Investments Ltd., said they expected a 75-point base rate cut. Makronóm Institute’s prognosis contains a 50-point cut.

Other factors affecting the forint’s currency exchange rate level

Moreover, the National Bank’s expectations concerning inflation and economic growth will also affect the forint’s currency exchange rate.

Experts believe the euro will remain in the 390-400, while the USD in the 360-370 domain in the following weeks.

Euro Hungarian forint exchange rate
Photo: facebook.com/bpcorrectchange

The Hungarian Central Statistics Office (KSH) will share the unemployment rate and the balance of payments on Wednesday. On Thursday, they will make the average gross salary increase public. Those can also affect the forint, but the deciding factor remains the MNB’s base rate cut decision.

UPDATE

On Tuesday: the Hungarian central bank cuts the base rate again, details HERE

Read also:

  • Grim outlook: Will the forint plummet to 400/EUR? – Read more HERE
  • Hungary introduces brand new strange-shaped yet fabulous forint coins – Details in THIS article

Featured image: depositphotos.com

Grim outlook: Will the forint plummet to 400/EUR?

forint

The forint’s exchange rate is under pressure due to soaring inflation rates, an ongoing conflict between the National Bank of Hungary (NBH) and the government, the overall weak performance of the European economy and the debate over EU funding in Hungary.

In a recent interview with SzeretlekMagyarország.hu, László Molnár, CEO of GKI Economic Research Co., shared his cautious perspective on the future of the Hungarian currency. He outlined several factors that are exerting a negative influence on the economy.

Factors endangering the forint

First of all, investors are wary due to the European Parliament’s decision to take Hungary to court over misallocated funds. Furthermore, the central budget seems to be struggling, as well: this year will likely see high budget deficits, despite government claims of strict management of funds.

We wrote last week that the forint took a sharp plunge on Tuesday, reaching a one-year low, and nearly crossing the 400 EUR/HUF psychological barrier. The litigation will likely continue to affect the currency, although by Wednesday, it has stabilised at around 395 EUR/HUF.

As our report highlights, the conflict between the National Bank of Hungary and the Fidesz government might also endanger the forint, with the bank cautioning that the upcoming regulations could jeopardise the institution’s autonomy and stability.

On the contrary, in a recent statement, the National Bank criticised politicians and news outlets that, according to them, shared false speculation about the souring relationship between the bank and the government, highlighting that the governor of the central bank and prime minister Viktor Orbán have a strong working relationship.

“Contrary to the false rumours, Prime Minister Viktor Orbán and central bank governor György Matolcsy have a fair working relationship and continue to hold regular consultations on professional matters as they have in recent years,”

the NBH declared.

Nonetheless, Molnár also calls attention to the importance of government actions, saying that in order to protect the forint, policymakers would need to implement changes that

“support the belief that the Hungarian government is committed, for instance, to keeping the budget deficit under control and to implementing the criteria that the European Union requires and thereby is able to secure the EU resources for the development of the economy, which, obviously, benefits the budget itself through the growth of the GDP.”

However, he also highlights that the previous budgetary interventions of the national bank to maintain GDP growth also contributed to the overheating of the Hungarian economy and connectedly, high inflation rates. The difference, Molnár says, is that at least the bank tried to act – although quite late – to protect against the deterioration of the external balance by raising interest rates. The government, however, did not take any steps.

Import prices to soar in the future?

Ultimately, it is consumers who will face the consequences of these policy mistakes. Molnár predicts that travelling abroad will become more expensive and that the prices of imported goods will also rise. And, as import rates are quite high in Hungary, GKI estimates around 40 percent, devaluation of the currency can itself increase inflation, Molnár explains.

Indeed, as we reported earlier this month, last year, Hungarians spent less on goods per capita than any other EU citizens, due to low real incomes and a high inflation rate. In 2023, the prices in Hungary were over 95 percent of the European Union’s average. Meanwhile, Hungarian incomes remained at half, or in some cases one-third, of EU levels.

Experts from the National Bank warned that unless government fiscal policy changes significantly, these trends might not reverse.

Read also:

  • Central Statistical Office published devastating data on the Hungarian economy – HERE
  • Hungarian finance minister: Previously blocked EU funds continue to arrive – READ HERE

Hungary introduces brand new strange-shaped yet fabulous forint coins

forint money collector coin central bank

The Hungarian National Bank has issued a new rectangular-shaped forint coin to commemorate the world-renowned Hungarian Thoroughbred racehorse, boasting the longest undefeated streak in racing history by winning in all of her 54 races.

According to the central bank’s official Facebook page, the institution has released both silver coins (valued at HUF 15,000, EUR 38) and their non-ferrous metal counterparts (priced at HUF 3,000, EUR 7.5). These newly minted coins made their debut on the market yesterday, coinciding with the 150th birthday celebration of the Hungarian “wonder horse.”

Each side of these coins depicts Kincsem from different perspectives, drawing inspiration from the works of Emil Adam. The front side of the forint coin commemorates her 54 victorious races, while the reverse features her owner, Ernő Blaskovich. Additionally, the imagery includes Kincsem’s “talisman” cat, a faithful companion present at all her contests.

The designer of the commemorative forint coin is Gábor Kereszthury, and here’s a glimpse of what it will look like:

Read also:

  • Hungarian film Kincsem huge success in the USA too – Read more HERE
  • The most famous Hungarian animals to be proud of – details and photos in THIS article

Featured image: depositphotos.com

Panic sets in: Hungarian forint plunged to a one-year low

Hungarian forint currency change

The Hungarian forint took a sharp downturn following revelations that the European Parliament’s legal affairs committee is pursuing legal action against the European Commission regarding the release of over EUR 10 billion in cohesion funds to Hungary last year.

The ongoing litigation could prolong the disbursement of EU funds to Hungary, which could negatively affect the Hungarian forint exchange rate in the short term. Portfolio reports that the euro jumped above 399 in the afternoon, driving the Hungarian forint to a one-year low.

The forint last traded near the 400 level in March of the previous year.

Furthermore, the dollar has also begun to strengthen following worse-than-expected US inflation data, currently hovering around 365 forints. It appears that the foreign exchange market is still processing the news concerning the disbursement of Hungarian EU funds.

In January, the European Parliament had already censured both the European Commission and Viktor Orbán, asserting that the EUR 10.2 billion had been made available as a result of yielding to Orbán’s coercion, in exchange for the Hungarian Prime Minister refraining from vetoing Ukraine’s EU accession launch—however, the EUR 50 billion in aid to Ukraine, slated for disbursement at the time, was not granted.

Now, the case brought before the European Parliament by French conservative Geoffroy Didier was initially intended for discussion solely within the EP’s legal affairs committee to assess the prospects of legal action, but MEPs opted for a vote instead. As a result,

even the conservatives, previously opposed to the lawsuit, voted to take the European Commission to court over the EUR 10.2 billion in catch-up aid allocated to Hungary.

This development underscores that Hungarian foreign policy is teetering on the brink of complete collapse and stands isolated.

The next phase in the case involves the committee presenting the case to the President of the Parliament, who will determine whether to proceed with legal action against the EC.

If that were not enough cause for concern, the MNB’s recent statement may also unsettle investors. The central bank has cautioned that the forthcoming amendment to the central bank law could jeopardise central bank autonomy and financial stability. As we wrote earlier, Hungarian forint to continue depreciating amidst deepening conflict between the Hungarian National Bank and the government, economist warns.

Fidesz MEP slams EP’s ‘legally incomprehensible’ lawsuit against EC

It is “legally incomprehensible” that the European Parliament is suing the European Commission ultimately because the body’s leftist groups disagree with the EC’s decision to unfreeze funding for Hungary, an MEP of ruling Fidesz said on Tuesday.

The EP is enveloped in “panic” as its mandate nears its end, Balázs Hidvéghi said in a video message, adding that the EP’s “Soros-affiliated majority” and “the Hungarian dollar left” were “desperately continuing to attack Hungary”.

Hidvéghi said it was “tragicomic” that the one EU institution, the EP, was turning to another, the European Court of Justice, to sue the European Commission in order to “punish” a member state that “refuses to dance to their tune”.

“There’s less than 100 days left until the EP elections,” he said, calling for change in Brussels.

“If we do not want the European Parliament to become a caricature of democracy, we must elect MEPs who work for normal European people, rather than for obsessive, extreme left-wing ideologies,” Hidvéghi said.

Weakening forint: policy dispute wreak havoc on Hungarian currency

Hungarian forint national bank central bank governor Matolcsy historic lows

Hungarian forint to continue depreciating amidst deepening conflict between the Hungarian National Bank and the government, economist warns.

The Governor of the Hungarian National Bank (MNB), György Matolcsy, expressed harsh criticism of the Hungarian government in recent days, RTL reports. According to Matolcsy, the government intentionally undermines the independence of the central bank.

The root of the policy dispute

Matolcsy accuses Márton Nagy, the Minister of Economic Development, of personally spearheading legislation aimed at curbing the MNB’s autonomy. Furthermore, Matolcsy contends that Nagy’s tenure as Vice President of the National Bank was marred by significant professional misconducts, an “unacceptable leadership style” and actions contrary to the central bank’s interests, leading to his dismissal in 2021.

Márton Nagy reacted to Matolcsy’s words saying “Thank God that I have a different boss now.”

According to economist and former National Bank Governor Ákos Péter Bod, the professional conflict between monetary and fiscal policymakers is based on the fact that while the central bank would safeguard the exchange rate of the forint, the government encourages economic growth that, in turn, drives inflation. Indeed, Matolcsy has argued that fiscal policy should promote productivity and investment instead of high inflation rates that fuel deficit in the central budget.

However, Bod cautions that the personal feud between Matolcsy and Nagy escalates tensions between the MNB and the government, complicating the resolution of substantive issues. Moreover, their public discord undermines confidence in the forint, further weakening the struggling currency and thereby harming Hungarian consumers.

Looking ahead: the future of the forint

As we previously reported, the EUR/HUF exchange rate dropped to 394 following the decision of the Monetary Council to implement interest rate cuts. According to Bod, heated disputes between the MNB and the government, coupled with the central bank’s interest rate reduction initiative, could lead to a HUF 400/EUR exchange rate in the coming months.

A weakened forint, Bod explains, will inflate the cost of imported goods, directly impacting consumers in Hungary.

Policymakers convened on Monday the 4th of March for the 2024 Economic Year Opening forum to discuss the future of the Hungarian financial system. Amongst the speakers of the event will be Hungarian Prime Minister Viktor Orbán, who will reflect on the accomplishments of the Hungarian economy in 2023. He will also outline the objectives of the government for the upcoming economic year and the planned implementation of future policies.

Some of the most important issues raised at the event will likely include future efforts to reduce the central budget’s deficit, keeping inflation at bay in 2024, as well as the efficacy of the central bank’s monetary politics. Minister of Finance Mihály Varga and Márton Nagy will also be speaking at the forum. However, perhaps as a sign of the tense relationship between the Governor and the Fidesz government, György Matolcsy will not be present at the event this year.

Read also: Hungarian forint falls at brutal pace: where will it land? – Read HERE

Forint at 5-month low! – Details in THIS article

Hungarian forint falls at brutal pace: where will it land?

forint exchange rate money

The Hungarian forint is depreciating: on Wednesday afternoon, the EUR/HUF exchange rate was already 394. How much further can it go?

On Wednesday, the Hungarian currency weakened by almost 1%. The euro now costs HUF 394, but the currency has also weakened against the US dollar, with the latter now costing HUF 362 on Thursday.

The zloty is also strengthening against the forint

Not all payers in the region are experiencing a dip. For example, the Polish zloty is soaring against the forint, now at an all-time high: the Polish currency is now worth almost HUF 91, the highest-ever rate. The strengthening of the zloty may be driven by the upcoming agreement on Polish EU money.

An unnamed investor in Budapest told Reuters that he believes the domestic currency will weaken to 395 against the euro within a month, and any strengthening will be temporary, with the MNB’s accelerated interest rate cuts weakening the forint, szeretlekmagyarorszag.hu reports.

Read also:

Forint at 5-month low!

Hungarian forint state budget historic lows

It appears that the Hungarian National Bank has opted for a different strategy compared to its recent approach. Instead of prioritising the protection of the Hungarian national currency against exchange rate declines, they aim to stimulate the economy through a low base interest rate. Consequently, the Hungarian forint hit a five-month low yesterday and shows no signs of imminent recovery.

As detailed in THIS article, the Monetary Council of the Hungarian National Bank voted for a 100 basis points decrease yesterday. This is welcomed news for those seeking to borrow money, as loan interest rates are expected to decline soon. However, it could spell trouble for the HUF/EUR exchange rate.

With the Hungarian National Bank shifting its focus away from solely safeguarding the Hungarian forint, the significant reduction in the base rate may lead to the breach of the HUF 395/EUR level, possibly strengthening to the psychological limit of 400/EUR.

Analysts at the Egyensúly Institute have forecasted that the Hungarian forint will likely remain above the 400/EUR threshold in 2025.

Deputy Governor of the MNB, Barnabás Virág, said yesterday that the acceleration in the pace of base rate reduction was a temporary measure, as reported by portfolio.hu. However, this has failed to reverse the trend of forint weakening.

By evening, the forint had even reached HUF 391/EUR. Now it stands at 391.2/EUR.

Read also:

  • The National Bank’s decision may wreak havoc on Hungarian forint – UPDATE: HUF 400/EUR comes – Read more HERE
  • Hungarian forint at 3-month low: no recovery in sight – Details in THIS article

The National Bank’s decision may wreak havoc on Hungarian forint – UPDATE: HUF 400/EUR comes!

Hungarian forint

The Monetary Council of the Hungarian National Bank (MNB) is anticipated to announce another reduction in the base interest rate today. However, even slight deviations in the details could precipitate a significant fluctuation against the euro.

According to index.hu, Governor György Matolcsy and the Hungarian National Bank are gearing up for a pivotal decision that will impact the markets and the exchange rate of the Hungarian forint.

The monetary council is expected to implement a 75 basis point interest rate cut today, a move that could potentially strengthen the Hungarian forint. Currently, the national currency hovers around the 389-390/EUR mark. Nevertheless, should the interest rate cut deepen to 100 basis points, a decline may ensue once more. Zoltán Varga, a senior analyst at Equilor Investments Ltd, said that if the decision indeed entails a 100 basis point interest rate cut, the forint would breach the 390 threshold and reach 395/EUR.

Varga noted that while the consensus among experts leans towards a 100 basis point rate cut, he anticipates a reduction of 75 basis points.

Barnabás Virág, Deputy Governor of the MNB, confirmed that both scenarios—a 75 basis point or 100 basis point rate cut—are under consideration. In January, the Monetary Council was anticipated to implement a 100 basis point reduction but ultimately settled for 75 basis points.

Virág told index.hu that one argument in favour of the 100 basis point cut is the low inflation data for January. However, the decision-making process could be influenced by the extension of the interest rate cut programme by both the Federal Reserve (FED) and the European Central Bank (ECB), which suggests a more measured approach.

The MNB’s base rate affects loan interest rates, inflation and real wages in Hungary, Virág added.

Dániel Molnár, an analyst at the Makronóm Institute, suggested that if positive developments were to emerge from the Hungarian economy and both the FED and ECB opted for a rate cut, the forint could strengthen to the 385/EUR level. Currently, the forint hovers around the psychological threshold of 390/EUR as of Monday.

UPDATE1 – Egyensúly Institute: HUF 400/EUR comes!

According to the Egyensúly (Balance) Institute, the forint will continue to lose its value against the EU currency. That is because of the Hungarian National Bank’s base interest rate decreasing program. The MNB does so because of the lowering inflation, but the result is expected to be a weak forint.

Portfólió, a Hungarian economy-focused news outlet, shared the institute’s prognosis for 2024 and 2025 concerning the forint. They say that this year, the forint will move in the HUF 393-401/EUR level, while in 2025, it will be in the HUF 403-418 category.

In the last few months, the MNB protected the forint to halt its skyrocketing weakening. But declining inflation enables them to pump more money into the Hungarian economy by lowering the base interest rate. In January, the real interest rate was 6%, higher than in the last ten years. In the neighbouring countries, that is lower. Egyensúly Institute wrote that the MNB’s base rate will be below 5% by the end of 2025. Now it is at 10%.

UPDATE 2 – Here is the Hungarian National Bank’s decision

Hungarian central bank (NBH) rate-setters cut the base rate by 100 basis points to 9.00 percent at a regular policy meeting on Tuesday. The Council also decided to lower the symmetric interest rate corridor in tandem, bringing the O/N deposit rate to 8.00 percent and the O/N collateralised loan rate to 10.00 percent. In a press release, the Council said disinflation had been “stronger than expected”, external and domestic demand pressures remained “persistently low”, and Hungary’s risk perception had improved further as the current account balance improved. “This allows the base rate to be lowered at a temporarily faster pace,” the Council added.

At an online press conference after the meeting, central bank deputy governor Barnabás Virág said lower than expected inflation and improved risk perceptions had allowed for the “temporary” acceleration in the easing cycle from 75bp cuts at the previous policy meetings.

He added that the inflation path was now about half a percentage point lower than the central bank’s earlier short-term forecast.

Virág said the Council’s expectation for the mid-year interest rate level was unchanged. He added that market players’ expectations for an interest rate level of 6-7 percent at the end of the first half appeared “realistic”.

He said the Council continued to take a “data-driven” approach and noted the importance of the March Inflation Report in determining the pace of the easing cycle in the second quarter.

Answering questions, Virág said all of the internal members of the Council had voted for the 100 basis point cut, which was supported by the “large majority” of members, but there was also backing for a 75bp reduction.

Read also:

  • Hungarian forint at 3-month low: no recovery in sight – Read more HERE
  • 5 and 10 forints coins will be withdrawn, HUF 50-100,000 banknotes will be issued in Hungary? – Details in THIS article

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.

Read also:

Hungarian forint hit another historic low!

Hungarian forint on a downslope again banking

The Hungarian forint hit a new historic low against the Polish zloty following an unexpected decision of the Czech national bank.

According to portfolio.hu, the Czech koruna affected the exchange rate of the Hungarian forint the most in the second half of this week. The Czech national bank implemented a higher base rate cut than experts calculated before. As a result, the Czech currency started to plummet and reached a two-year historic low.

Meanwhile, the Polish zloty was able to strengthen even on Thursday. And that was enough for the forint to reach a historic low against the Polish national currency. The PLN/HUF exchange rate stands at 89.9/1 even now. The Hungarian currency set the previous historic low in November 2022 when it was almost in a free fall against the euro reaching even 430/EUR.

The reason behind the strong zloty and weak forint is that the Polish National Bank did not modify its base rate. Meanwhile, the Hungarian national bank cut it by 75 base points. Even though that was lower than the market expected, the forint could not evade weakening. The base rates stand at 10% in Hungary and 5.75% in Poland, which means that Hungary’s relative base rate advantage decreased.

Additional reasons explaining the weak forint

Furthermore, Hungarian assets are less attractive due to the bad EU-Hungary relationship, even though Orbán gave the green light for the EUR 50 billion Ukraine aid last week.

Moreover, Hungary’s annual budget was worrisome in 2023. As a result, even the 2024 budget is risky. That is why the Hungarian government will modify its annual target deficit from 2.9% to 4.5%.

Finally, Hungary has been blocking Sweden’s NATO accession for almost two years now, and it does not seem like the issue will be concluded in days. On the contrary, Orbán expected the Swedish prime minister to come to Budapest before the parliament accepted Stockholm’s bid, but Ulf Kristersson said there was no reason for that.

Such conflicts increase anxiety in investors and make the forint vulnerable.

Currently, we have to pay more than HUF 388 for one euro.

Read also:

  • Hungarian forint fell sharply in the last few days, but today there is hope – Read more HERE
  • 5 and 10 forints coins will be withdrawn, HUF 50-100,000 banknotes will be issued in Hungary? – Details in THIS article

Hungarian forint fell sharply in the last few days, but today there is hope

forint exchange rate - daily news hungary

The euro was at 388.29 Hungarian forints yesterday evening at 6pm, up from 386.24 forints early in the morning, while the dollar was at 360.61 forints, up from 358.88 forints, and the Swiss franc was at 413.07 forints, up from 412.69 forints.

At Wednesday evening’s close, the forint was 1.3 percent weaker against the euro, 3.8 percent weaker against the dollar and 0.1 percent weaker against the Swiss franc than at the start of the year.

After falling on Monday, the Hungarian forint started to fall again on Wednesday morning, intensifying on news that the European Commission has launched infringement proceedings against Hungary over its sovereignty protection law. Details here: EC to launch infringement procedure against Hungary. By early afternoon, the euro had jumped to 389 and the dollar to 361, and we were close to a new multi-month low for the forint in both currency pairs.

Thursday morning

There were some minor fluctuations in the forint on Thursday morning, but there is no clear direction of trading for now, with the euro at around 388 Hungarian forints, as it was yesterday evening.

There will be no foreseeable event today that will have a significant market-moving force, with both domestic and international economic calendars empty, portfolio writes.

Forint and zloty

It points out that exchange rate movements against our regional currency pair, the Polish zloty, could plunge to a new historic low, with a slightly weaker exchange rate than the current level only seen in the second half of 2022.

Will the Hungarian National Bank withdraw the lowest forint coins because it is no longer worth producing them? Will they introduce HUF 50,000 and 100,000 banknotes due to the high inflation? Here are the answers.