Here’s why experts say the Hungarian forint will never be strong again

Last week we had to give 400 HUF for 1 EUR. On Monday morning we had to pay 383 Hungarian forints for 1 euro, but the Hungarian currency strengthened during the day. In the afternoon you could buy 1 euro for “only” 371 HUF. Today, this rate is 1:372, so it seems that the downward spiral of the Hungarian currency has stopped. However, the experts are not calm. Here’s why.

Magyar Nemzet, close to the government, is hopeful

According Magyar Nemzet, the war has caused the forint to weaken in recent weeks. However, those who were selling forint and buying foreign currencies have disappeared from the market, so the forint has a chance to stabilize. The close-to-government document says the forint has started the year well, and experts hoped this trend would continue in 2022. However, the growing tension between Russia and Ukraine and the Russian invasion

forced the forint into a downward spiral.

Hungary is not alone in the region with this problem. The same thing happened to the Polish zloty and the Czech crown.

According to Magyar Nemzet, the state of the Hungarian economy does not explain this trend. The weakening of regional currencies was caused by investment funds which started to sell their regional financial assets, including Hungarian ones. Then they converted the money received into euros and US dollars. As a result, regional currencies weakened, while the Euro and USD strengthened. The forint hit its new nadir last week when 400 HUF cost 1 EUR. After that, its value began to increase. The trend was the same in the case of the Czech crown and the Polish zloty.

The question is whether the forint will return to the previous 340-370 HUF/EUR zone or remain in the 370-400 zone.

Magyar Nemzet maintains that, provided nothing unexpected happens during the war, the value of the forint will remain around 370. In addition, the daily close to the government says whether the new measures of the national bank will be successful.

the Hungarian currency could strengthen.

The opposition economist is pessimistic

Ákos Péter Bod, co-leader of the united opposition economy cabinet, thinks differently. Former President of the Hungarian National Bank believes that the forint will remain in the 365-400 zone because the Hungarian economy is very dependent on energy exports from Russia. He added that no one should expect an exchange rate of 330 HUF/EUR in the future.

Could the introduction of the euro be the solution?

Hungarian economist Zoltán Pogátsa said that inflation in Hungary would be in double digits and even over 20% in the case of food. He added that the reason behind this was partly government election spending which generated unnatural demand in the economy. He clarified that the reduction in utility costs leads to a significant loss in the state budget. This is because the price of gas tripled after the war. Taxes restore the balance, but the system is not sustainable.

He said the 400 HUF/EUR exchange rate meant the government had lost control of the forint.

He said the reason for the downward spiral was the country’s energy policy, with Hungary being the most dependent European state when it comes to Russian gas and oil. The dependency is almost 100% currently, he pointed out. Also, the government is sticking with Paks 2 and wants it to be built by the Russians. Therefore, the country’s dependence will only grow in the future. As a result, investors believe the Hungarian market is risky, which the market factors into the exchange rate.

Pogátsa thinks the government should calm the markets with a change in energy policy.

This would be the only way to stabilize the forint in the 330-360 zone. Pogátsa said he does not see such plans in the opposition either.

He clarified that the introduction of the euro would not mean greater stability. For example, the Baltic states that use the EU currency have faced higher inflation than Hungary in previous years. Inflation will remain a national phenomenon, he concluded.

Read alsoHere’s why experts say the Hungarian forint will never be strong again

Source: mandiner.hu, Magyar Nemzet, szeretlekmagyarorszag.hu, index.hu

Laura T. Thrasher