September 25, 2023

Hungarian Forint Facing Slow Recovery after Sharp Fall

The end of May saw Hungary’s Forint take a battering, as it reached almost record lows. However, a poll was conducted on Thursday of central European currencies, which disclosed that the currency could recover most of its losses in the next year and actually see a gain of almost 7%. There has been a sharp decline in the value of forint, which lost more than 7% starting at the end of March. This had begun because of concerns about the disputes of the European Union that held up recovery funds. Plus, investors had also become rattled because the monetary policy tightening had slowed down and now windfall taxes have been imposed on companies and banks.

The results of the poll showed that analysts expect the Hungarian currency to remain under pressure for the next couple of months, particularly as the global mood continues to remain sour. But, with easing worries, it is likely that it will create some space for gains in the currency. The analysts said that once the monetary and fiscal actions settle down, the forint may experience a bit of strengthening. But, it is unlikely that the currency will get close to pre-war levels, as long as the risk mood globally remains uncertain.

In the next 12 months, it is expected that there will be some improvement in risk sentiment, as well as a correction in monetary policy and this will give the HUF the space it needs for getting stronger. The median forecast of the currency poll showed that the forint could climb to 370 against the euro, which would be about a 7.4% increase from the levels it closed at on Tuesday. The Hungarian currency had declined to 400, which is an almost all-time low. If this gain does materialize, it is likely to erase the fall it has seen in value since the end of March.

However, despite the climb, the forint would still remain weaker than it had been before Russia had invaded Ukraine back in February. This invasion has shaken every market and affected the forint as well, which had reached a value of 350 before it. The poll also indicated that the next 12 months could also see an increase in value of the Polish zloty. As per the median forecast, it is expected to climb by 1.4% against the euro that will bring it to 4.50. As for the Czech Crown, the currency is expected to weaken in this year to reach 25 against the euro.

But, it will eventually rebound, although not by much and is expected to come to a value of 24.715 in a year. Last month, the currency had come under pressure because the central bank had announced a changeover, which could bring an end to the rapid policy tightening that has been conducted in the last few months. There has been a surge in inflation, which has driven policymakers to increase the interest rate since 2021 in order to combat it. The poll showed that the only currency expected to ease in the next year is the Romanian leu.

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