Reason why the Hungarian forint keeps weakening

The Hungarian forint has been getting weaker lately. Even when it strengthens, it is still not as strong as it could and should be. Read our article to find out why the Hungarian currency is where it is today.

Forint being this weak is unreasonable

“There is no reason for the euro to be 400 forints,” says former central bank governor György Surányi, who says that the forint is weakening at almost every word of György Matolcsy (Governor of the Hungarian National Bank, MNB) and Márton Nagy (Economic Minister). According to Surányi, this shows that in the eyes of the market neither the government nor the central bank has any credibility, writes Forbes.hu.

Former central bank president György Surányi shared his thoughts on the weakening of the forint in an interview with Privátbankár.hu on 23 June. Surányi was twice head of the Magyar Nemzeti Bank: in 1990-91, he was State Secretary, and between 1995 and 2001, he was its President.

The weakest in the region

It is a sad fact that the forint-euro exchange rate has been hovering around the 400 level for days. The forint has not performed well over the past ten years, with a decline of around 50%, it is one of the worst performers in the region. Since February alone, it has weakened by 12-13%, far underperforming the currencies of the region, Forbes.hu reports.

Why does the forint keep weakening?

According to the Central Statistical Office (KSH), domestic inflation is 10.7%. About half of inflation is the result of externalities, according to Surányi. But the other half is due to internal effects.

“The head of the MNB has said that neither credit outflows nor loose fiscal policy nor real wage increases have an inflationary impact. So what on earth could have an inflationary effect?” asks Surányi.

“Whenever either the minister or the central bank president has spoken, the forint has always reacted by falling. They should think about their own credibility,”

he adds.

As for the Minister of Economic Development, Márton Nagy, who said that the forint exchange rate is exactly where it should be, he said, “I do not think it is a lucky way of putting it, the exchange rate fell five forints after that. In a small, open economy, neither the government nor the central bank can say that they do not care about the exchange rate.”

Source: Forbes.hu, napi.hu