There are still two more months left of this year, but we can already state that the Hungarian forint will be one of the most underperforming national currencies of 2022. Hungary’s central bank raised the rate for overnight collateralised loans by 950 basis points to 25 percent from 15 percent two weeks ago. That helped the forint and raised its exchange rate. But experts agree that the positive trend will only be temporary, and the forint will underperform expectations in 2022, meaning that the exchange rate may worsen before Christmas due to its vulnerability.
Forint to return to the HUF 430/EUR exchange rate?
In the first half of October, the Hungarian forint reached historic lows one day after the other. Temporarily, the exchange rate dropped even to 430 HUF/EUR. On 14 October, Hungary’s central bank raised the rate for overnight collateralised loans by 950 basis points to 25 percent from 15 percent, and stabilised the exchange rate of the national currency in the 405-415 interval. However, swings are still significant.
Based on the analysis of the experts of Aegon sent to Pénzcentrum, the devaluation rate of the forint against the euro reaches 11.5 percent compared to early 2022. Meanwhile, that rate is only 3.1 percent in the case of the Polish zloty. Furthermore, the Czech koruna could strengthen in that period by 1.6 percent.
The performance of the forint against the USD is even worse. The Hungarian national currency lost 27.5 percent of its value. That put forint among the worst-performing currencies in the world. Only the Argentinian peso and the Turkish lira outdid its plunge.
What is the problem with the forint?
There are multiple reasons behind the bad performance of the Hungarian forint. One is the strong USD, which is traditionally bad news for the currencies of emerging markets like Hungary. Furthermore, the high natural gas prices are also very harmful since Hungary pays for the resource in euros or dollars. Therefore, the state and the companies need to convert a lot of forints to buy the amount of gas the economy needs. Moreover, the central bank drains the country’s foreign currency reserves to help businesses. However, even though the gas prices decreased, the forint did not follow until the drastic intervention of the central bank.
Experts reminded Hungary’s base rate is very high compared to the regional competitors. It is almost twice the Polish and Czech levels. But the markets expected more, at least 14 percent or more, instead of the central bank’s 13. That is why the exchange rate grew above 430 HUF/EUR in the first half of October.
An agreement with the European Commission would help a lot, experts believe. That would allow Hungary to get a lot of euros which Budapest could spend on gas instead of converting forints to buy it. However, if there is no agreement until the end of 2022, Hungary will lose billions of euros.
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