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Forint under pressure

February 3rd, 2014

A business analyst says critics have been too hasty to condemn the National Bank for not resorting to swift “verbal intervention” in response to the heavy losses the Forint has suffered over the past week. A pro-government columnist urges decision makers to consider joining the Eurozone, in order to shield Hungary from currency fluctuations.

The Hungarian currency lost over three per cent to the euro and the dollar last week, and MNB chief György Matolcsy has even been criticised by pro-government pundits for not stating clearly that the issuing bank is determined to defend the Forint.

On Portfolio, financial analyst István Madár explains that a verbal intervention by Matolcsy would only have made sense if the National Bank was contemplating a policy of raising interest rates. Whatever his critics say, the analyst points out, he wants to keep on course and avoid a hike as long as possible, hoping that the storm will calm down before the next interest rate decision has to be taken in three weeks’ time. Hungary’s economy is not in a bad shape, Madár argues, but it is grouped with emerging countries with which it has little in common. Quite unlike most of those countries, Hungary has a positive trade balance, an extremely low inflation rate and a public deficit below three per cent, but it is yet to be seen if investors are willing to differentiate between one “emerging economy” and the others.

Magyar Hírlap’s main business commentator Csaba Szajlai urges the government to set a date for entering the Eurozone and join its ante-chamber, ERM II as soon as possible. Without explicitly mentioning sceptical remarks by the Prime Minister and the Chairman of the National Bank, he passionately tries to refute the reasons the government usually invokes to stay away from the Euro for the foreseeable future. Hungary meets the deficit requirement, he says, and while public debt has not really fallen, a decreasing tendency is not out of reach. The inflation rate is also below the Maastricht requirements. Admittedly, he continues, it also reflects a one-time event, i.e. the effect of the utility tariff cuts of the past year, and it is also true that the yields to pay on sovereign bonds will hardly fall under the current circumstances. Yet, Hungary has never been so close to meeting the Maastrich criteria, and its weak and open economy is too exposed to market fluctuations not to join the joint currency at the earliest possible date. Meanwhile, Hungary’s credit ratings would also profit from joining the Eurozone. He believes that the government should enter ERM II as early as next year. He concludes his piece by expanding Viktor Orbán’s usual exhortation: ’Go, Hungary! Go, Hungarian Euro!”.

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