Experts Predict Trend Change Following Forint Strengthening
The Hungarian forint has had a turbulent year in 2022, with a historic low against the euro and the American dollar following the Russian invasion of Ukraine. The Hungarian National Bank intervened to prevent further weakening by initially raising the base interest rate. However, after implementing an interest rate cut program, the forint began to weaken again. While there was a brief strengthening of the forint against the euro and the dollar in January and February, experts believe that a new weakening trend is on the horizon.
According to G7, a Hungarian economy-focused news outlet, the forint strengthened in the early months of the year, with exchange rates improving against major currencies. However, the forint is still vulnerable to fluctuations in international gas prices, which decreased recently. Analysts suggest that a ceasefire and the resumption of trade in Ukraine could benefit the forint, but these changes will not occur immediately.
Despite the recent strengthening, experts predict that the forint will weaken in the near future due to uncertainties in the state budget, higher-than-expected inflation rates, and challenges facing the Hungarian industrial sector and economy. With inflation at 5.5% in January, the Hungarian National Bank is not likely to decrease the base interest rate, according to analysts. The expectation is for a weakening trend in the forint until at least November.
The ongoing war in Ukraine continues to impact the exchange rate of the forint, with a possible ceasefire and peace talks having the potential to influence the currency positively. However, if the conflict persists, it is likely to further weaken the Hungarian currency.
In other economic news, Hungary’s construction sector saw a decline in output in December, with a 4.2% year-on-year decrease. While construction sector output increased slightly month-on-month, new orders decreased during the period. Overall, construction sector output for the full calendar year decreased by 0.4%.
With uncertainties surrounding the Hungarian forint and the wider economy, it will be important to monitor developments in the coming months to understand the full impact of these fluctuations on Hungary’s financial stability.
