The US Federal Reserve may give the deathblow to the Hungarian forint
Goldman Sachs Group Inc’s economists believed the US Federal Reserve (Fed) could bump up interest rates to as high as 5 percent by March 2023, Reuters wrote. That would mean 25 basis points more than earlier predictions. That would strengthen the USD further, which is bad news for emerging economies like Hungary and its struggling national currency, reaching consecutive historic lows against the euro and the dollar in the past few weeks.
“Goldman’s economists added that the journey to a 5 percent hike includes increases of 75 basis points this week, 50 basis points in December and 25 basis points in February and March”, Reuters said. The reasons of the Fed are the following:
– “uncomfortably high” inflation,
– need to cool the economy,
– avoiding a premature easing of financial conditions.
Read alsoVery bad news came of the Hungarian forint
A continuous increase of the Fed interest rates will result in a stronger dollar, which is good for the USA in the fight against inflation. However, such a move is bad news for the Hungarian forint and the national currencies of other emerging economies, napi.hu said. Fed carried out intensive interest increases in 2022 to baulk the highest inflation of the last 40 years. In March, Fed’s interest rate was almost 0 percent. Today it is between 3.00 and 3.25 percent and will probably culminate in 5.00 percent in March, the Hungarian economic news website added.
If that happens, capital might move from the bonds and investments in emerging markets to the American state bonds since those would become the “blue chips”. As a result, American capital will leave the Romanian, Slovakian, Czech, Hungarian, Polish markets, weakening the national currencies. Import-dependent economies like Hungary will struggle with growing prices since world trade is denominated in USD. And that may result not only in the further weakening of the forint but could also boost the already skyrocketing inflation.
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Source: napi.hu, Reuters
OK, but who cares about that when your country has one of the best burger makers in the world?
Yes indeed, who should care when the people can (COULD) eat one of the best burgers in the world while everything else around the people of Hungary is crumbling down and their tushes are going to be freezing off.
Incidentally, if I were to read the headline only, it could (?) infer that the FED is doing that just to hurt Hungary, or is it just my interpretation?