Hungarian forint continues to rise, annual euro peak reached

The Hungarian Forint (HUF) has made an incredible comeback on the international currency market. After a year of tumultuous and drastic price changes, it looks like the HUF is about to stabilise. As of 17 April 2023, the price of the euro (EUR) has almost edged up to where it was one year ago.

The economic and trade crisis which followed Russia’s invasion of Ukraine in March 2022 challenged the stability of HUF. The price of one euro increased all the way to a little bit over 430 forints. This made the Hungarian currency one of the worst-performing ones in the region. Since December however, the forint has started to strengthen exponentially. As we wrote before, while the bank closure crisis in the US in March took its toll, the HUF drew close to achieving the same strength it had just one year ago. The question arises: to what length can this go on, writes Portfolio.

What made the forint so strong?

We can pinpoint several different factors which helped the forint gain back its previous strength. One of the most important ones is the decisions made by the Hungarian National Bank (MNB), the central bank of the nation. To combat rising inflation and help stabilise the currency, the Monetary Council of MNB steadily raised the reference interest rate all the way up to 18 percent in October. This rate is much higher than the ones other EU member states set.

This decision put faith in international businessmen and made the HUF a valuable currency to invest in. On one hand, such a high-interest rate lowers the investment ratio, as it becomes more expensive to afford loans and loan payments. This leads to reduced economic growth or even shrinkage. On the other hand, reduced investment rates and loans help combat inflation and encourage foreigners to buy HUF, as such a high-interest rate makes it profitable for them to keep their savings in forint.