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Forint Reaches Yet Another Historic Low

Péter Cseresnyés 2020.02.13.

The Hungarian forint reached a new record low against the Euro on Wednesday, falling below 340. This means the Hungarian currency has lost more of its value by mid-February this year than in the whole of last year.

In 2019, the forint weakened until the end of November, when it hit its all-time low at just over 337 against the Euro. Although the currency slightly strengthened after that, analysts generally agreed that it could easily reach another low peak against the Euro in 2020. We didn’t have to wait long for that to happen as the forint once again set a new negative record on Wednesday evening.  On Thursday, it fell even further, at HUF 340.29 quotation.

Will Historic Low Forint Lead to the Introduction of the Euro?

As economic news site Portfolio points out, the state of the Hungarian economy would not necessarily imply this steep of a fall, as the economic growth is rapid, the trade balance and the current account is in (slight) surplus, the budget deficit is kept under control, and its foreign currency debt ratio has decreased significantly.

The main reason for the new record is that the Hungarian central bank (MNB) has been keeping interest rates (base rate: 0.9%) at the lowest level in Central Europe. In connection with this, another contributing factor is the carry trade deals.

During these transactions, investors buy higher-yielding assets by using a “funding currency,” in this case, the forint, and take short positions in the asset currency with a higher interest rate, expecting further forint weakness.

After the forint hit the new mark, the Hungarian central bank didn’t feel the need to intervene, although many experts had expected that earlier.

Later, on Thursday morning, the currency began to gradually strengthen, according to experts, from the statements given by Márton Nagy, deputy governor of the MNB, during a background discussion, MTI writes.

According to Portfolio’s report, Márton Nagy said that the central bank would do its utmost to bring inflation back into the tolerance band, plus or minus one percentage point.

Featured photo via Pixabay