The Hungarian Forint will continue to be weak

In the last few months, there was a period when the Forint strengthened, and it was hoped that it would return to its valuation prior to last summer’s collapse. There are too many variables at play preventing the Hungarian currency strengthening; however, according to privatbankar.hu, further devaluation cannot occur either.

Despite it being a floating currency, the Forint’s value does not change much. The dollar’s value often rises and falls 10% compared to the Euro or Yen within a year or a few months, while the Hungarian currency does not usually move beyond its narrow range of 5%. However, last year’s collapse saw the Forint outside of this bracket.

Poor wages

Due to the Forint’s low value, Hungarian household incomes are still lagging behind Western European ones, despite a 10% rise in wages. Hungary’s net-average salary is under €800, which is a 1/3 of wages in Germany, Austria, France and the UK. All the while, Hungarian purchasing power parity (PPP) is above the countries mentioned.

There is a big difference between PPP and nominal value, meaning that the Hungarian currency is both weak and undervalued. In addition, Hungary has a balance of payments surplus, which would enable Hungary’s rise in wages if measured in Euros. Economists were hopeful that this process would start; however, it seems very unlikely at the moment.

Till 2013, 1€ could be purchased for under 300 FT. In subsequent years, the Euro’s value crept up to between 305 and 315 FT. This devaluation could be linked to the exchanging of foreign debts in the last few years.

Foreign debt

This process has been going on since foreign national debt has fallen from 50% to 20%, while securities in Swiss Francs had to be exchanged to other foreign currencies. After overcoming all these foreign exchange pressures and having a balance of payments surplus, it was predicted the Forint would strengthen and thus reduce prices.