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Forint stabilising after month-long drop

July 6th, 2018

A pro-government financial expert cautions the National Bank against yielding to market pressure and raising interest rates.

After the Hungarian currency lost 8 percent of its value against major foreign currencies over the past months, the rate of the Euro has sunk back from a record high of 331 HUF to 324 early on Thursday.

In Magyar Idők, Imre Boros, who served as the chief forex trader at the National Bank in the 1980s, writes that the recent pressure on the Forint has been purely speculative. The Hungarian economy is booming as consumption has been on the rise. Meanwhile, the balance of payments shows a substantial surplus, therefore there are no fundamental factors pushing towards devaluation. Boros suspects that the recent weakening of the national currency is therefore driven by investors who want to force the National Bank to increase its base interest rate and thus make more money with their deposits. Meanwhile, they also intend to profit by buying back (at a lower exchange rate) the Forints they have sold in a speculative effort over the past weeks. He urges the National Bank to be resilient in the face of that pressure and keep the interest rate low. Such low rates have in fact alleviated the burden on the budget in servicing public debt, Boros explains.

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