On Thursday, the Hungarian forint hit an all-time low against the major currencies once again, with one Euro costing 337.28 HUF. Although the HUF has since “climbed back” slightly, experts don’t expect the trend to turn soon, adding that the Central Bank of Hungary (MNB) seems also fine with the current situation.
In its analysis, economic site Portfolio finds that among the 29 most used currencies in the world, the Forint is the fifth worst performing this year. Only three South American currencies (Argentinean peso, Chilean peso, and Brazilian real) and the Turkish lira performed worse than the Hungarian (a decline of 9.2%) in comparison to the US dollar. In comparison to the Euro, although the Hungarian currency’s decline rate is lower, it is still the fifth worse.
According to investment expert Viktor Zsiday, the problem is that the Hungarian interest rates are extremely low compared to surrounding non-euro user countries. As a consequence, the forint’s weakening is the result of a deliberate strategy, he claims. By weakening the forint, the Central Bank might be trying to defend against a global economic slowdown.
Rate-setters of the National Bank of Hungary left the base rate unchanged at 0.90% in mid-November, meaning that the Council has left the rates unchanged for more than half a year. 'According to global leading central banks' indications and market pricing, a loose monetary policy environment will be persistently maintained, and additional moderate loosening measures can be expected,' they said in a statement.
Zsiday argues that the MNB could easily set the forint’s exchange rate any time anywhere between 300 and 350 – with verbal intervention on the one hand and interest rates on the other. But for the time being, they are perfectly happy with the weakening trend of the forint, so they keep low interest rates – but this may not always be the case.
According to the senior analyst of K&H Bank, the Euro could easily strengthen up to 345 forints next year. Dávid Németh said that apparently the Central Bank is not bothered at all by the forint’s underperformance to other currencies, as the inflation is not high worldwide and they expect that this would halt price increases in Hungary as well.
In Hungary, on the other hand, inflation is rising, core inflation is already at 4%, so he expects an inflation rate of above 3% in the coming years. In his view, although MNB could change the situation, it does not communicate or take steps in that direction; as a result, the forint may weaken further, and the price of the Euro may rise to around 343-345 forints next year. Németh expects the government to take action rather than the MNB.
According to the MNB, the low base rate can save hundreds of billions forints for the budget in interest expenditures.