The Hungarian forint collapsed – here is why
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.
Weak forint troubles everybody
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.
EU to introduce sanction even in the energy sector?
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.
- Read also: Central bank may intervene: a record weak forint poses a serious threat to the Hungarian economy
Short-sellers and critics
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.
Read alsoForint hits 400 historic lows against the euro, government blames Brussels
Source: telex.hu,
The value of the forint only matters when buying foreign goods. When people support their homegrown industries, the currency value is not that critical.
For years now I have been trying to buy only those things which are made locally & grown locally. So when certain things are in season, I eat lots of it & enjoy it. When it has passed, I eat potatoes, squashes, cabbages, root vegetables, other things which I have pickled, jammed, preserved. Sort to the recommended 100 mile economic practice to keep locals in jobs, with incomes. Many talented people do art, knitting etc & there is no one who doesn’t love handmade wool socks, chainsaw mits or maple syrup etc. I have been asking for ages “WHY DO WE SPEND OUR HARD EARNED $$$ TO MAKE OTHER COUNTRIES WEALTHY?”
Obviously the Hungarian government’s policy of largely defying the NATO and EU directives in the Ukraine war, and its wide perception of being a Russia-friendly actor, did not help Hungary’s economic rating and the Forint took the first hit. Politics can make or brake a modern economy and the market’s reaction is fast, especially in the case of a small economy which was already opaque and its leadership continuously ostracized in Brussel for widespread corruption and nepotism. Even until the breaking of the war the economy was walking on a tightrope, but now Budapest’s series of EU-unfriendly moves and the newly enacted freezing of EU-developmental funds to Hungary, due to the above mentioned high level corruption, which was a key EU monetary injection to the Hungarian economy every year, will further deteriorate the economic outlook, and rapidly so. Although Hungary is not yet a pariah on the international financial stage, but its heading in that direction.