Hungarian forint plummets again – here is why
After a significant strengthening trend, the forint is weakening again. Read on to find out the main reasons why.
Rule-of-law conditionality mechanism
The European Commission has notified Hungary earlier this week that it is activating the rule-of-law conditionality mechanism against the country. Ursula von der Leyen, President of the European Commission, announced this on Tuesday in the European Parliament. For the first time, this event was one during which MEPs could ask questions from the Commission President.
The rule-of-law mechanism is a tool that allows the European Commission to withdraw EU funding from a Member State if it is found to be in breach of the EU’s core values and, most importantly, to the detriment of the EU budget.
However, as we can read in 24.hu’s article, the launch of the mechanism does not mean that no money will come to Hungary from now on. A long dialogue between Hungary and the EU, which could last for months, will now begin.
The Commission will have to determine where and to what extent EU core values and the budget are being breached, and then impose a sanction.
Finally, the members of the European Council will vote on this.
The forint’s performance
After the first couple of rounds of election results, the forint strengthened minimally. However, during the first day of the fifth Fidesz government, the forint started to fall against the euro, according to Forbes.hu.
The euro fell to almost 366 forints immediately after Fidesz’s victory around midnight on Sunday. However, the forint fell on Tuesday morning, with the euro trading at around 369.15 forints at 7 am.
By the evening of the same day, the forint had also weakened significantly against the major currencies compared to Tuesday morning.
According to Forbes.hu, the euro jumped to as high as 377 forints after 1 pm, following the announcement of the rule-of-law case against Hungary. As we can read in another article of Forbes.hu, the loss of EU funds makes it very difficult to restart the economy. Current expectations are for growth to fall to essentially zero from the second quarter of the year.
Source: Forbes.hu, 24.hu