The head of the National Bank of Hungary, György Matolcsy, regularly says that the forint is better for Hungary than the euro. The eurozone would not reflect the swifter Hungarian economic growth or smaller decrease during the epidemic, he believed. Meanwhile, economists and analysts say that the euro would be better for Hungary. One of their strongest arguments is that the common currency would protect the Hungarian economy better in times of crisis.
Among others, Zoltán Török, an analyst of the Raiffeisen Bank, wrote in 2020 that the epidemic and the economic crisis could result in a weak forint. He added that the quick and unpredictable currency changes were a significant burden on the companies. Meanwhile, the introduction of the euro would stabilize the Hungarian economy in crisis periods – telex.hu said.
It seems that the analysts were right. After the Russian invasion of Ukraine, all Central European currencies started to lose their value. However, that forint’s value decrease was outstandingly huge even in the region.
There are many reasons behind the weak forint, and only one of them is the Russian invasion itself, telex wrote. For example, investors put their money in stronger currencies in times of war. Therefore, they sell forint and buy USD, EUR or JPY. This process increases the value of these foreign currencies and decreases the ones being sold.
In the case of Hungary, it is also a crucial factor that the war is in the neighbour. Moreover, the Hungarian economy is vulnerable to Russian and Ukrainian energy imports. Both the war and the economic sanctions against Russia endanger now these ties. Only 3.6 pc of the Hungarian export goes to Ukraine and Russia. However, in the case of gas import, Hungary is one of the most dependent states of the EU towards Russia. Interestingly, the EUR weakened against the USD and Swiss franc.
Mihály Varga, the Hungarian minister of finance, said that the Hungarian forint became a victim of the Brussels sanctions. Of course, all these financial and economic sanctions were accepted by Hungary before. He added that the greatest danger to Hungarian forint and people would be if sanctions were introduced in the energy sector. Varga did not mention how the Hungarian economy is affected by the Russian-Ukrainian war. He also did not explain why Budapest is affected more by the EU sanctions than Germany, a country much more dependent on Russian energy than Hungary.
The war in Ukraine decreases investments in the whole Central European region. Furthermore, sanctions reduce regional and global growth. That results in decreasing capital influx and hurts the forint.
Meanwhile, short-sellers also appeared on the forint market, and many speculate against the forint these days. That affects the currency, though nobody knows how significantly.
Interestingly, the value of the Hungarian currency has decreased more than the Ukrainian hryvnia since the Russian attack.
Critics say that the national bank’s loose monetary policy contributed to the weak forint. The bank fueled the economy with its low interest and loan programs. Therefore, the inflation in Hungary was higher than in the other countries of the region. Inflation causes problems in the West. The war and the ceased Ukrainian agricultural export will worsen the situation. The result will be a price rise of the relevant products.
Telex.hu argues that a possible increase of the base interest rates by the US Federal Reserve will affect negatively the EUR and all national currencies linked to it, including the forint. István Madár, the leading macroeconomy analyst of the Portfolio, said on Monday that the weak forint does not reflect the state of the Hungarian economy. If the hysteria on the markets come to an end, the forint might become stronger. However, he added that the siege of Kyiv began only now, and some EU states mentioned possible sanctions against Russia in the energy sector. Therefore, it does not seem the situation will calm down soon.