forint

Hungarian National Bank prior to serious decision: forint may start plummeting on Tuesday

Half Hungary would like to get a glimpse of what György Matolcsy, the governor of Hungary’s national bank, will decide about the base rate this Tuesday – this is how mfor.hu, a Hungarian economic-focused new outlet starts its article in the issue. Tomorrow’s decision will play a key part in how the forint’s exchange rates will shift. And that affect not only tourists, investors and the people of Hungary but also the state budget and expenses.

According to mfor.hu, Hungary’s monetary policymakers faced a crisis last year when the annual inflation rose to 20 pc while the Hungarian forint started to lose its value rapidly. Therefore, they began crisis management following the textbooks. They increased the quick deposit rate from 13 pc to 18 pc. Thus, the quick deposit rate became five percent higher than the national bank’s base interest rate.

The change helped forint but did not affect the inflation, which continued to increase and showed 25.7 pc in January. After January, the inflation rise started to moderate while the forint stabilized at 370/EUR. Therefore, in May, the national bank began cutting the quick deposit rate by 100 base points. Now, the one-day deposit rate is 14 pc, only one pc higher than the base rate. Károly Csabai, the author of the mfor.hu article believes that tomorrow, the national bank will cut 100 base points again, so the base rate and the quick deposit rate will meet again.

Read also:

Minister expects 7% inflation in Hungary by December – Read more HERE
Euro introduction in Hungary? Finance minister answers

Inflation to decrease significantly

Zoltán Varga, the senior analyst of Equilor Investments Ltd, agreed with that but reminded that following the latest monetary council cut, bad news came from the Hungarian economy. Thus, decision-makers may accelerate the rate cut pace, but the analyst does not believe it will happen. That is because the main goal is to reduce the inflation. And that is a success story since in July its rate was below 20 pc for the first time since last September, Világgazdaság wrote.

Analysts believe the national bank would accelerate the process only if inflation began decreasing significantly. Furthermore, a more significant cut may collapse the foreign exchange rate. Mr Varga said that the forint is stable on the monetary market, and could always correct after sways in the exchange rate. But he said that volatility would remain high. Furthermore, he believes that the forint’s weakening trend will also remain. However, exponential weakening is highly unlikely, provided there were no external shocks. That is because the markets already priced the expected quick deposit rate decreases.

Read also:

Orbán: Economic growth fell quite badly in the second quarter – Read more HERE
Hungary’s forint among the world’s best currencies: what does the future hold?

Forint maintined volatility

In THIS article portfolio.hu collected the opinions of seven senior analysts about the expected base rate changes between August 2023 and December 2024. The median of their expectations is that by next December, the base rate will be 6.5 pc, which will help the currently frozen crediting in Hungary. Furthermore, portfolio.hu believes that by December, the inflation will be around 7-8 pc in Hungary. Thus, they think the national bank will decrease 100 base points again in October (quick deposit rate and base rate).

Péter Koncz (Századvég Konjunktúrakutató) said the base rate reduction program might be slowed down by the increasing energy prices or the lack of EU funds. Therefore, they expect a high 12 pc base rate by December 2023, while other analysts wrote 10.00-10.5 pc.

August 28, 2023

Euro introduction in Hungary? Finance minister answers

It is premature to talk about Hungary adopting the euro, Mihály Varga, the finance minister, said at an event on Saturday.

It is important to restore balance to the economy as soon as possible, and fiscal policy must aim at reducing the deficit and the public debt, Mihály Varga said at the Tranzit festival in Tihany, in western Hungary.

At one point, Hungary had been in a position meet all conditions for joining the euro zone, bar the exchange-rate requirement, and the two most recent crises confirmed that had Hungary adopted the single currency, the Hungarian economy would be exposed to far less risk, Varga said.

The euro would also have several advantages politically, Varga said, noting that a Eurobarometer survey from January showed that 72 percent of Hungarians approved of the idea of joining the euro zone in the interest of stability.

But drawbacks, he added, were having to abandon an independent monetary policy and that the European Central Bank based its decisions mainly on the criteria of core countries such as France, Germany, The Netherlands and Italy, so Hungary may end up sidelined.

Central banker Gyula Pleschinger said during the debate that Hungary was now far away from joining the euro zone, “because we cannot even fulfill the Maastricht criteria”.

He said the country may be able to adopt the currency during the decade of 2030.

Read also:

August 27, 2023

Hungary’s forint among the world’s best currencies: what does the future hold?

The leading analyst of CIB Bank, Mariann Trippon, gave a precise prediction of the forint’s future. The Hungarian currency has been struggling in the last few months, partly because of international and domestic reasons. Will we have to pay HUF 400 for 1 EUR in the second half of 2023 or just 360? That is the big question she answered, and her result is quite astonishing and logical at the same time.

According to G7.hu, the forint may take three possible levels: 400, 385, and 365 per euro. To predict where the forint will be months later, we have to know what factors affect its currency exchange rate. In 2022, the forint was one of the worst-performing currencies in the world. Meanwhile, in H1 2023, it was one of the best-performing ones. How is that possible?

Read also:

Hungarian forint among the world’s worst-performing currencies – Read more HERE
Hungary’s forint became one of the best currencies in the world!

Firstly, the Hungarian national bank introduced a high base interest rate, one of the world’s highest (18%). Furthermore, they announced they would not reduce that as long as inflation is not down and the forint is not protected. As a result, many investors borrowed money in EUR, USD, GBP, etc and invested in forint, increasing its value. The strategy worked but balancing it costs a lot for the Hungarian taxpayers (because they pay the high interest rates, which makes the business profitable for the investors).

Here is what the future holds for the forint

Moreover, European gas prices decreased, the global market started to boom, and investors were optimistic concerning the foundations of the Hungarian economy. However, investors will not park their money in forint forever, so such strategies are risky in the long run. And that is why the forint’s currency exchange rate changed significantly between January and August. We paid 365 and 395 for one euro during these months.

Will the smallest Hungarian coin be phased out and replaced by a new banknote?

Inflation remains sky-high in Hungary. This justifiably raises the question of whether the smallest five-forint coin will be phased out in favour of a larger denomination, the 30,000-forint note.

Inflation also affects cash use

According to the statistics of the Magyar Nemzeti Bank (MNB), high inflation has a direct impact on cash usage. There is less demand for larger denominations, and smaller denominations are used more often and therefore wear out faster.

In July, there were nearly 650 million banknotes in circulation. Compared to the previous year, there was a 4.1% decrease in value and a 2.6% drop in volume. The two largest denominations, the 10 and 20,000 forint banknotes, were less used.

Change in banknotes and coins?

The smallest value 5 forint coin accounts for 33% of all coins. “The inclusion of the 5 forint is not on the agenda,” the MNB told Index. They added that the coin is actively used and there is no reason to include it.

The MNB plays a key role in the design of the structure of forint notes and coins. Before a decision is taken, a lengthy impact assessment is typically carried out, as this involves huge costs.

“The introduction of new banknote or coin denominations is not on the agenda,” the central bank asserted. So, despite high inflation and a deteriorating forint, there will be no 30,000 forint banknotes for the time being.

The role of cash is diminishing

In recent years, the number of cashless, electronic payments has been growing steadily. However, Hungarians still often pay cash for smaller purchases.

MNB said that there was no upcoming target date for the introduction of the euro. “After Hungary joins the ERM II exchange rate regime, it will be necessary to examine the role that Magyar Pénzverő Ltd and Pénzjegynyomda Ltd can play in the production of euro payments.”

August 14, 2023

Unprecedented trade surplus data may help forint

Hungary’s trade surplus widened to 1.481 billion euros in June from 1.129 billion in May, the Central Statistical Office (KSH) said in a first reading of data on Tuesday.

Exports grew by an annual 11.1 percent, to 13.380 billion euros, while imports decreased by 4.7 percent to 11.899 billion. Trade with other European Union member states accounted for 77 percent of Hungary’s exports and 71 percent of its imports during the month.

In January-June, Hungary’s exports rose by 10.8 percent year on year, to 76.920 billion euros, while imports were up 1.4 percent at 72.890 billion. The trade surplus was 4.030 billion euros. According to Gábor Regős, the leading analyst of the Makronóm Institute, the good news about Hungary’s current balance may help forint to strengthen, Index wrote.

Hungary greenhouse gas emissions down 7 pc yr/yr, close to 2030 target

Hungary’s greenhouse gas emissions fell by 7 percent in 2022 compared with 2021, the energy ministry said on Tuesday, citing the National Meteorological Service (OMSZ) which sends approximate data on emissions to the European Commission at the end of July each year. Since 1990, emissions have fallen by 37 percent, the ministry said in a statement citing the preliminary data.

Industrial emissions were down 18 percent year on year, while those contributed by agriculture declined by 12 percent. Transport-related emissions increased but the upward curve flattened, the statement added. Total emissions of Hungarian businesses registered in the EU Emissions Trading System (ETS) fell by 12 percent in 2022.

Eurostat data from June indicates that Hungary cut its carbon dioxide emissions from energy use by 8.6 percent, to the greatest extent after the Benelux countries, the statement said. Final data will be released in spring 2024.

August 8, 2023

Hungarian forint on a roller-coaster: 400/EUR exchange rate realistic soon

Hungarian forint state budget historic lows

Levente Tóth, the editor-in-chief of bank360.hu, shared his thoughts about the forint’s future in RTL Klub’s Reggeli show. Unfortunately, he could not be the bearer of good news.

According to rtl.hu, Mr Tóth said that the forint suffered an almost 10 percent weakening in the last few days. As a result, we have to pay HUF 390 for an euro instead of 370. On the other hand, no analysts said in 2022 that the forint would be below 400/EUR in 2023. He said forint was unexpectedly strong up until this week.

Mr Tóth highlighted the reality is around 390-400/EUR even if we do not like that currency exchange rate. He added provided this rate remains, we will suffer its consequences in the fuel prices and the prices of almost all imported goods. We wrote HERE about the continuously increasing fuel prices and its causes. One of them was the weak forint. Mr Tóth said the weakening’s first consequence would be the increasing fuel prices.

But where will the weakening stop? The analyst said a 430/EUR historic low exchange rate could only be reached provided something extraordinary happened. He added that the 400/EUR exchange rate cannot baulk a dinamic inflation decrease, which is good news. However, if the forint remains weak in the long run, that will have a negative effect on the one-digit inflation goal set to be met this year-end.

Forint weakening expected

On 3 August, the forint reached its 5-month low. In March, the Swiss and American bank crisis resulted in the weak forint showing how volatile the Hungarian national currency was. The Hungarian forint has been weakening for the second week now. The reason is the strengthening USD which regularly causes the weakening of the emerging country currencies.

According to the analyst centre of OTP, the euro exchange rate can be above 400, while in the case of dollar, the rate will be 375/USD. Rtl.hu argues that the Hungarian national bank will intervene if the trend worsens. That is because the weak forint generates inflation and weakens the Hungarian economy. In 2022, most analysts said the euro will be around 400 in 2023. Concerning that, the forint outperformed expectations in the last few months. Currently, the exchange rate is slightly below 390/EUR.

Hungarian forint on a slope, no telling when it reaches bottom

August 5, 2023

Hungarian forint on a slope, no telling when it reaches bottom

The Hungarian forint continues to slide down the slope. On Thursday morning, one euro cost more than HUF 390.

The Hungarian forint continues to weaken

24.hu reports that the Hungarian currency was above HUF 391/EUR on Thursday morning. The weakening is linked to unfavourable international investor sentiment.

European stock markets fell further on Thursday. Meanwhile, the US dollar strengthened. “The US announcement on visa restrictions played a major role in the weakening above the current level of 390. Investors typically react to such announcements, which show frictions between countries, by closing their positions and selling their forint assets, which results in a weakening of the currency,” Dániel Molnár told index.hu.

The HUF was last at a similar level on 21 March.

August 3, 2023

Why has the Hungarian forint weakened against the Polish zloty?

The Hungarian forint started weakening this Monday against all the major currencies. In addition, it has reached an annual low against a regional currency, the Polish zloty. The zloty is going extremely strong, it’s currently at its best compared to the past three years.

Napi.hu reported that the Hungarian forint is nearing the 400/EUR threshold, leaving behind the 370/EUR zone. As if the 387/EUR exchange rate wasn’t bad enough, things are expected to turn for the worse. The Polish economy is on a similar trajectory as the Hungarian. When comparing the two countries’ currencies, we find that the forint has weakened significantly against the zloty. During the Covid pandemic, the two currencies were more or less of the same growth and shrinking curve. However, this spring, the forint started falling dramatically. Due to the measures taken by the Hungarian National Bank, the exchange rates were back to normal for a while.

Widening differences

According to the Hungarian Minister of Finance, the aim is to achieve a stable forint exchange rate. Yet, the current weakening is rather worrisome, especially given that even the zloty has continued to strengthen. The zloty exchange rate has reached a three-year high against the euro. Meanwhile, the forint has hit an all-time low this year against the Polish currency. It only adds to the problem that Hungary is the only one among the emerging EU countries with an independent currency that is facing a massive domestic currency weakening. The Czech koruna has been strengthening against the euro for many years. The Bulgarian leva is doing great with its fixed exchange rate, and the Balkan country is already in the process of joining the eurozone. The zloty was the only currency that had its highs and lows along the forint. Now, this has come to a dramatic end.

Polish zloty to boost Polish wages

It’s hard to pinpoint the exact reasons why the forint is the only currency in the region that has been languishing. Certainly, we all root for the forint to have a triumphant breakthrough and find an equilibrium. In this current situation, even the Hungarian National Bank could have easily achieved this through an intervention. Of course, no miracles are expected. But it isn’t ideal either that the forint lags so much behind the zloty. In fact, the widening difference between the exchange rates of the two currencies also prompted the average Polish net wage to exceed and leave far behind the Hungarian one. Poles now earn 20 percent more than Hungarians, which is a major advantage.

August 2, 2023

VIDEO: Spectacular animation for the 77-year-old Hungarian forint

The Mimicry Animation Studio (Mimicry Animációs Stúdió) team created a short film using only Hungarian banknotes to celebrate the 77th birthday of the forint on 1 August. In 10 scenes, the unique animated short film brings to life the well-known, detailed and spectacular images that we see every day but perhaps no longer even notice.

The Mimicry Animation Studio’s film reveals, among other things, what kind of conspiracy the town of Esztergom is home to, when blood flows from the well of Hercules, and who the 100-forint coin is crying for. The miniature works of art on the banknotes tell a fascinating story about the past, the present, about us. And it’s all there in our pockets every day. Never before has such an animation been created, it is absolutely unique in the world.

If you are interested in more details about which scenes were made with which banknotes, or how an animated film is made with banknotes at all, you can find more information HERE (right now, it is available in Hungarian).

The film was directed by Tamás Kőszegi, who has previously made “The Copyist” and won several international awards for his work. The music was composed and the film was scored by Péter Csontos. Dramaturg Zita Török, animation by Ágnes Teodóra Péntek, Laura Földeák, Kamilla Kállai and Lilly Odett Gaál.

After years of research, the creators have collected hundreds of banknotes from all over the world, which they hope will be used to make a short film that will include a selection of banknotes from all over the world.

Photo gallery

August 1, 2023

Forint closes the week badly, further weakening expected

Thursday brought significant changes in the EUR-USD exchange rate because of the better-than-expected American inflation data and the softer communication of the European Central Bank. The USD strengthened, and that had a significant negative effect on the forint. But where is the end of that slope?

According to portfolio.hu, other factors affected the exchange rate of the forint. One of them was the Japanese national bank’s unexpected policy change ruining the global investment mood. That is why the forint broke even the 385 HUF/EUR and the 350 HUF/USD exchange rate. Currently, those rates are 384.4 and 349.oo

Forint concludes a week of constant weakening

This week marked a 1.8 pc fall against the euro and 2.9 pc against the USD. Meanwhile, its regional competitors performed much better and forint lost 2.9 pc of their value against the Polish zloty and 2.6 pc against the Czech koruna. That means an 8-month-long low against the Polish currency. In the first phase of the week, the reasons were internal. The Hungarian national bank decided to maintain the base interest rate but narrowed the interest corridor further. The upper band lowered by 100 basis points to 17.5 pc. In the second part, the aforementioned external factors contributed to the forint’s plummet.

Markets now wait for the Polish CPI data next Monday and the Czech central bank’s interest rate decision next weekend. Those may further decrease the value of the forint. Interestingly, the Czech national bank’s base interest rate at 7 pc. Meanwhile, that rate is 13 pc in Hungary, the highest in the EU. The national bank will not decrease it in the short run because that is the only barrier between the forint’s drastic weakening and today’s exchange rate.

Read HERE about the Hungarian finance minister’s thoughts about introducing the euro. In THIS article we tried to sum up the reaons behind the forint’s weakening.

July 29, 2023

Forint unable to stand up: Despite good news, rapid weakening continues

Despite continuous good news for the forint, the Hungarian currency is weakening again. This might come as a surprise given that both the central bank and the finance minister have indicated that they want a stable exchange rate. It is highly possible that there is a technical reason behind it now, after the failure to break through the high level in the strong direction.

In the early morning hours, it seemed like the forint could be strengthening. However, it changed directions real quick: in just an hour, the euro strengthened 4 units against the forint, Portfolio writes.

This happened despite the fact that in recent days, lots of good news have surfaced about the forint. Firstly, a central bank analysis announced that the devaluation of the forint is no longer considered favorable. After this, the Minister of Finance Mihály Varga emphasised that he is now also a supporter of the stable national currency.

Weakening forint despite the good news

Although the level of 383 per euro is not dramatic compared to the previous ones, the forint still weakened. However, after such strong state support, such a reaction would not really be expected, napi.hu writes. Perhaps this is exactly the problem: those who bought a lot of currency in the hope of further strengthening, when it looked like the exchange rate was almost going to move in a strong direction at the level of 370, have now lost hope. The reason is that the good news did not bring strengthening either, so they are now closing the positions.

Of course, this is only one possibility. However, such a process can often be experienced with various financial or investment instruments, if the testing of a large technical level takes a long time, but in the end it is not possible to pass it, napi.hu explains.

The EUR/HUF exchange rate reached 384.20 at 2.10 PM on Wednesday.

July 26, 2023

Hungarian finance minister: We need to think about the introduction of the euro

Last year would have been easier even if we had been part of the ERM-2 system, the precursor to the euro, Finance Minister Mihály Varga admitted in an interview with VG.

Although the vast majority of Hungarians have long been in favour of joining the eurozone, the Orbán government has made no effort to replace the forint with EU currency since it came to power in 2010. Now the situation seems to have changed due to Hungary’s economic crisis (huge inflation, no money coming in from the EU fund), and the Hungarian finance minister has at least mentioned the euro.

Minister Varga stressed in the interview that we committed to adopting the euro when we joined the EU, but that careful consideration should precede the choice of the right date for joining.

We should think about the possibility, but the government should not rush into this issue,

Mihály Varga said, citing the Czech Republic as an example.

The 2024 budget is planned for an exchange rate of 381 forints to the euro, the minister said.

The government expects economic growth of 4% next year, which several credit rating agencies consider over-optimistic. Varga said:

I will sign if it ends up being 3 percent.

He said analysts agree that growth will be strong next year, because the outlook for the Hungarian economy is good: foreign investment is coming in briskly, our investment rate is the highest in the EU, exports are at a record high this year, and the labour market is tight. The government expects growth of 1.5 percent this year.

Varga says Brussels is increasing deficits and causing economic damage by blocking the funds Hungary is due.

I find it inexplicable that three years after the launch of Covid, there are still countries, including Hungary, that have not received the support they deserve. As the programme is about to enter the repayment phase, we could have the impossible situation where Hungary is paying back the loans it has taken out and has not yet received either the grant or the loan part, he said.

The inflation outlook was also discussed. Varga expects inflation to accelerate its decline over the summer and even more so in the second half of the year, which will be helped by easing borrowing rates.

Of course, the public purse will suffer from lower consumption, as we have less tax revenue, but this also means that inflation will be able to fall faster than previously expected, the minister said, adding that there are also forecasts that the rate of price increases will slow to 6-8 percent by the end of the year.

July 24, 2023

National Bank decision: forint may start to plummet next week

Next week, the Hungarian national bank’s monetary council will hold a sitting to decide the one-day quick deposit rate. Furthermore, the Hungarian Central Statistical Office will share employment data in June and how average income changed in May. All these have crucial importance concerning the exchange rate of the forint.

According to index.hu, Hungary’s finance ministry will share detailed data on the state budget next Monday. The deficit is significant, almost HUF 3,000 billion (EUR 7.6 billion). In June, the state budget deficit rose by HUF 132.7 billion (EUR 350 million). That was the lowest number in the last eight years.

Index.hu wrote that even though salaries rise in Hungary significantly (between 11.7 and 18.9 percent), the real wage decreased by 6.9 percent since prices grew by 24 percent compared to last June.

Forint to be affected by national bank’s decision

The national bank’s monetary council will modify the one-day quick deposit rate. In June, they did not change it, so it remained at 13 percent, which was introduced last September. But they reduced the upper end of the interest rate corridor from 19.5 percent to 18.5 percent. Read more about the June decision in THIS article.

Meanwhile, the monetary council decreased the overnight deposit rate from 17 percent to 16 percent. Next week, they are expected to continue that reduction program, which may affect the currency exchange rate of Hungary’s forint significantly. And the reason for the reduction is that the loss of the national bank became unbearable due to the high base interest rate, which also froze Hungary’s credit market.

The unemployment rate is not expected to be high in Hungary. Between March and May, the number of unemployed people in the 15-74 age group grew by 27,000 and reached 191,000. The unemployment rate stood at 3.9 percent in Hungary in May.

Will the forint get wings after the optimistic announcement of the finance minister? HERE is our article.

July 23, 2023

Forint will get wings after minister’s optimistic announcement?

Hungary’s finance minister, Mihály Varga, acknowledged to Reuters in an interview that the high one-day deposit rate of the National Bank of Hungary served the protection of the forint. He added that the notion of weak currency boosting exports was in the past. The government seems committed to protecting the Hungarian national currency and not letting it weaken below the current level (370-380 per euro). But will that be enough?

The Hungarian forint is a very volatile national currency. That could be seen in its high amplitude exchange rate modifications following e.g. this year’s bank crisis. However, the Hungarian government seems to be committed to protecting its rate around 370-380 HUF/EUR. After reaching historic lows last October, the national bank introduced high one-day deposit rates. They started to decrease that, but Reuters highlighted that the process would be gradual.

As a result, the national bank (NBH) has very high losses, which the law says the state budget should cover. But it will not, probably because it does not have money for that. The sum is HUF 2,300 billion (EUR 6 billion). Mr Varga told Reuters that “we have agreed with the National Bank of Hungary that we propose a solution to the ECB that … would allow the NBH to correct its losses over the medium term, that means about 3-5 years. Having a negative equity poses no threat to the operation of the central bank.” Therefore, they will amend the central bank law.

Varga painted a very favourable picture of the Hungarian economy. He said inflation would be around 7-8 percent by December (now it is approximately 20 percent, the EU’s highest). Varga said the government planned economic growth (1.5 percent in 2023 and 4 percent in 2024). Finally, he highlighted that the suspended EU recovery and cohesion funds would start flowing. “I trust that we will not have to prepare an Fx bond issue, so talks on EU funds will accelerate,” he said.

Anda Present inaugurates HUF 2.5 billion investment

Promotional gifts company Anda Present inaugurated a HUF 2.5 billion (EUR 6.7m) expansion at its base in Kalocsa, in southern Hungary, on Thursday. The investment created 100 jobs, Finance Minister Mihály Varga said at the event. Anda Present has built a 5,300sqm hall with 1,100sqm of production area, 3,700sqm of warehouse space for finished products and a 500sqm office, CEO Attila Andras said. The project, supported by a government grant, is the first part of a 4 billion forint investment, of which the next phase has already started: the construction of a 5,000sqm warehouse, he added. Budapest-based Anda Present employs a total of 570 people, including 265 in Kalocsa.

July 21, 2023

Hungarian forint at its peak, but technical hurdle to come, says analyst

After a sharp weakening, the Hungarian forint has strengthened against both the euro and the dollar in recent days. At noon on Monday, the domestic currency rose to 373 against the euro. It was a new two-week high. What is more, the forint strengthened to 332 against the dollar, which was a new 15-month high, said Attila Weinhardt, Portfolio analyst.

Two-week high, 15-month high

The forint climbed to a two-week high against the euro and a more than one-year high against the dollar on Monday morning. With the former at 373 and the latter at around 332, the currency has had a very good day, InfoStart quotes Attila Weinhardt, analyst at the Hungarian economic news portal Portfolio, as saying.

One of the main domestic factors in the forint appreciation is that the central bank interest rate remains very high, at 16 percent for overnight deposits. In addition, the investor environment abroad is supportive, the Portfolio analyst explains. As an example, he cites that the Fed, the US central bank, appears unlikely to raise rates further after July and is expected to start a cycle of rate cuts next year, starting in the spring and early summer.

The market hopes that the European Central Bank (ECB) will soon embark on a similar exercise, he noted.

In other words, he says, pricing in the top of the rate hike trajectory and then being fuelled by optimism about the cut, which is what matters most in the international environment right now. “This is what is also underpinning the so-called carry trade strategies that are playing on interest rate differentials, which is also driving the forint to stronger and stronger levels,” he said.

Technical barriers await the forint?

Based on this week’s macro calendar, which is rather uneventful, Portfolio’s analysts believe that the forint’s appreciation could persist. However, it is important that international sentiment remains favourable. At the same time, both the forint-euro and the forint-dollar are facing very strong technical barriers at a few units distance, signalling that there is limited room for further domestic currency strengthening, he added.

In Mr Weinhardt’s view, these technical barriers are in the 369-370 range against the euro and in the 329-330 range against the dollar. Basically, these technical levels could put a stop to the forint’s momentum.

July 18, 2023

Forint at 1-year peak against the American dollar!

The American dollar continued to fall last night and today. Therefore, the Hungarian forint reached a 1-year peak against the US national currency.

However, the Hungarian currency was not strong enough to beat the euro. The forint-euro exchange rate was around 374.3 this evening, which means the forint could not regain its strength acquired earlier this year. But it could strengthen to 332.6 against the dollar following a long strengthening period. Now it stands at 333.35.

Today and yesterday, the weakening of the American currency helped the forint. The euro-dollar exchange rate is around 1.12 now. That is the highest since February 2022.

A week ago, some experts talked about a 400 EUR/HUF exchange rate. But the Hungarian national currency could strengthen a lot in the last few days, portfolio.hu wrote. That is partly why it could reach a 1-year peak after the announcement of the better-than-expected American inflation statistics.

July 14, 2023

Positive figures published: this could boost the forint

According to the Central Statistical Office (KSH), in May this year, the value of exports calculated in euros was 5.2 percent higher, while that of imports was 5.4 percent lower than in the same period of the previous year. The foreign product trade balance improved by 1.3 billion euros. Compared to the previous month, the level of foreign trade product turnover increased by 13 percent on the export side and 7.3 percent on the import side.

Low domestic demand plays key role in drop in imports

In May, the value of exports was 12.9 billion EUR (4,813 billion HUF), and that of imports was 11.8 billion euros (4,410 billion HUF). The product foreign trade surplus was 1.1 billion euros (403 billion HUF). 77 percent of exports and 69 percent of imports were conducted with EU member states. In May of this year, compared to a year earlier, the value of exports in euros increased by 5.2 percent, while that of imports decreased by 5.4 percent, KSH wrote.

“In May, the foreign product trade balance developed favourably, the balance has not been at such a high level since September 2020. So now, the surplus is not only positive but also particularly high,” revealed Makronóm’s analysis. Based on last month’s data, the exchange rate may have improved in May as well, i.e. due to the normalisation of the energy market, the increase in export prices may have exceeded import prices. Taking this into account, the volume of exports may have increased slightly, while that of imports may have decreased more significantly. Therefore, it is unlikely that the weak performance of the industry is caused by exports, where moderate growth is achieved. Low domestic demand plays a role in the decline in imports.

Current account balance may be on the mend

The current figure is also important because it indicates that the balance of the current account may also improve on an annual basis, writes Index. This is necessary after the significant deterioration that occurred last year due to the high energy prices. In addition, hopefully, this will help the forint exchange rate somewhat after last week’s dramatic weakening. However, in the coming months, as a result of the gradually decreasing inflation, consumption may also pick up. If this occurs, it will also prompt an increase in imports, but in parallel, industry growth is also expected, so the balance does not have to deteriorate yet.

Good news for the forint

In April, the value of exports calculated in euros increased by 3.4 percent, while that of imports decreased by 4.0 percent. With this, the Hungarian foreign trade balance became surplus for the third consecutive month, which can be evaluated as a turnaround after the previous period, which showed a significant deficit. “Despite the unfavourable performance of the industry, exports managed to surge while imports plummeted. In addition to the change in volumes, the improvement in the exchange rate may have played a key role in this”
– evaluated the data, Gábor Regős, the lead analyst of the Makronóm Institute.

July 13, 2023

Forint in 3-month record low and declining – HUF 400/EUR comes?

forint exchange rate - daily news hungary

The euro-forint exchange rate stood at 384.59 on Saturday, but it was higher yesterday. Thanks to the national bank’s considerable base interest rate increase in autumn 2022 to 18 percent, the forint’s downfall could be stopped. But it seems the strengthening is over (the currency exchange rate reached digits below 370/EUR before), and a weakening period starts. But when will that be over, and what should we expect?

According to g7.hu, a Hungarian economic news outlet, the forint weakening was exceptionally quick this week. It lost its value in only eight days, an unprecedented term in the last three years. The Hungarian national currency hit a historic peak against the euro in October 2022 (434/EUR). But it stood below 370/EUR last week thanks to some drastic protective measures the national bank implemented last autumn.

The reasons for the weakening are partly external and partly internal. Among the external ones, g7.hu mentions the depression on the global money market starting on Wednesday. Meanwhile, among the internal factors, they write about the worrying state of Hungary’s state budget and economic development minister Márton Nagy’s suggestion to raise the 2023 inflation target. Furthermore, the national bank decreased the base interest rate from 18 percent to 16 percent.

Meanwhile, G7.hu said that the forint only corrected its exchange rate against the euro because it has become overvalued in the last few months. Index.hu referred to Dániel Molnár, who said the European Commission published its latest rule-of-law report about Hungary this week, and it did not contain any good news about getting the EU allocations. Billions of euros are at stake; we wrote about that HERE.

But what should we expect regarding the changes in the forint’s exchange rate?

Ákos Kuti (MBH Bank’s analyst centre): HUF 378/EUR by this year-end and 370 by 2024/2025. However, if the government agrees with the European Commission, it could boost the forint.

Index.hu asked several experts, who agreed there would not be a 400/EUR exchange rate again.

Zoltán Varga (senior analyst, Equilor Befektetési Ltd): 390/EUR by end-2023. But he talked about negative shocks, which can bring the exchange rate, even above 400. Among others, he mentioned the German economy’s recession and energy price increases.
János Nagy (macroeconomic analyst, Erste): he did not exclude the 400/EUR rate because the forint is very vulnerable.
Gergely Suppan (leading analyst, MBH Bank): despite the national bank’s base interest rate decrease program, he does not expect a drastic forint exchange rate fall.

By end 2023, this is what some institutions expect regarding the forint-euro exchange rate:

Erste: 380,
MBH: 378 and 370 by end-2024,
Makronóm: 375-380,
Equilor: 390.

However, economists agreed that PM Orbán’s plan for a 1.5 percent GDP increase is unrealistic. Without a smaller-scale wonder, it will be between 0.5 and 1 percent.

July 8, 2023