Hungarian Forint Analysis: Central Bank Holds the Firm Line as HUF Volatility Prevails against USD


Hungary’s sovereign currency, the Forint, has been notable for its volatility for many years now, and this week is no exception.

At the end of last week, the Hungarian Forint rose quite significantly against the US Dollar, going from 346.10 Forint to the Dollar on Thursday, April 20, to 342.05 Forint to the Dollar just one day later.

During the non-trading days of the weekend, the Forint rested at a healthy 342.04 to the US Dollar; however, this morning, as trading began in central and western Europe, the US Dollar suddenly rose in value against the Forint, taking it to 343.88 by 8.45 am Central European Time.

This sudden adverse turn in fortune for the Forint has been accompanied by concerns from analysts and commentators this morning that some domestic market-related factors within Hungary have contributed to a less optimistic view of the immediate direction of the national currency.

The backdrop of potential negative announcements from the Hungarian National Bank is now on the minds of investors and analysts alike, who are considering the possibility of narrowing the higher end of the interest rate margin as part of monetary policy for the next few months.

For those consumers and business owners in Europe and North America who have been used to very low, almost zero interest rates for many years and are now having to deal with the increases that have brought it up to around 4% in Europe and the United Kingdom and similar rates in the United States, those who rely on consumer and business lending in Hungary are faced with a far more heavy burden.

Currently, the interest rate is at 13%, and the central bank’s commitment to keeping it at this level throughout the spring has now had a shadow of doubt cast over it, as talks late last week appeared to demonstrate that the Hungarian National Bank may begin to loosen its policy on maintaining interest rates at such a high level.

Given that they have been at 13% since January and have been seen as a method of attempting to curb inflation and, more recently, discourage excessive borrowing in the aftermath of the recent American banking crisis which Hungary’s financial system was exposed to some extent, this has dented confidence and contributed to the sudden decrease in value for the Forint.

Barnabus Virag, Deputy Governor of the Hungarian National Bank, spoke out about how the potential lowering of the top interest rate level may affect the economy whilst weighing up such a move.

He said that the central bank could cut its eye-watering 25% top interest rate for certain collateralised loans this week as part of a move back toward normalisation.

Hungary, rather similarly to many other parts of Central and Eastern Europe, has been experiencing inflation of approximately 25% for a sustained period, which is a serious concern for businesses which have to continue to increase staff salaries only for said staff to experience no actual benefit other than to ‘tread water’ as the cost of everything spirals.

This level of inflation is of concern to investors, and any announcements relating to monetary policy, especially those geared toward moving back to normalisation, are likely to be met with conservatism by the vast majority.

This article represents FXOpen Companies’ opinion only, it should not be construed as an offer, invitation, or recommendation with respect to FXOpen Companies’ products and services or as financial advice.

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