Future of Hungarian forint still uncertain

Slowly but steadily, the crisis of the Hungarian forint is coming to an end. After a year of constant volatility, the currency is now becoming more and more stable. Having survived the panic created by the bankruptcy of numerous important financial institutions in the last 2 months, a steady 370-380 EUR-HUF exchange now seems like the most probable outcome for the near future.

However, this apparent stability is upheld by strict measures taken by the Hungarian National Bank (MNB) to protect the forint from collapsing. These have been in place for several months now. While they successfully defended the currency, they are causing damage in other economic areas. Having recognised this, the monetary council of MNB started loosening the restrictions placed on the forint. With the easing of these measures, can the Hungarian forint stand on its own legs? Or will this cause just more volatility, Index asks.

The beginning of the end

Russia’s invasion of Ukraine last year put the HUF through the wringer. Now, after months of strict decisions to stop the inflation of the currency, the recovery begins.

On 25 April, the MNB began the lifting of restrictions. They cut back the upper limit of the interest rate corridor by 450 basepoints. While this in itself is not a drastic change, it is a sign that the loosening of measures has started.  We can now expect more to come in the next months.

“Considering the decisions taken by MNB and the way they communicate, market players may get the idea that the central bank will handle the beginning of the interest rate reduction carefully,”