Dzindzisz Stefan

The weakening of the recent period may even lead to a historical minimum, but it is unlikely that the forint will occupy permanently. At the same time, no one expects a big strengthening, we will most likely stay in the range of 355-365 against the euro.

Behind the weakening of the forint in recent days, we must primarily look for external effects – said Mariann Trippon, a senior analyst at CIB Bank. According to him, the main reason for the uncertainty in the global mood: while in January, when vaccinations began, the market focused on easing restrictions even in the second quarter, which could follow a major economic recovery, now everyone is worried about inflation. “If the economic activity intensifies, it is possible that the offer will not be able to follow it. “In addition, monetary and fiscal policies are loose, which could overheat economies, which, according to market fears, could lead to overall price increases,” Trippo said of the change in international sentiment.

All of these developments have led to rising interest rates in both the U.S. and German bond markets, leading investors to seek safe yields, thus weakening new markets such as the forint. At the same time, we do not expect large fluctuations, as he said, the exchange rate between 355 and 365 will continue to prevail in the coming period, and may last until the end of the year.

In addition to fears of inflation, the spread of the coronavirus epidemic has also affected the forint exchange rate, which could hamper the opening of the economy and thus delay the start of the long-awaited recovery, says David Nemeth, a senior macroeconomic analyst at K&H Bank.

So, although the forint strengthened further in January due to the favorable international mood and relatively good Hungarian economic data, this trend was reversed. However, it is difficult to determine what will be more crucial in the near future: more cautious, riskier investor behavior or belief. It will also be worth noting, according to Nemeth, that the European Central Bank will have an interest rate meeting next Thursday, and the Fed, which will act as the US central bank, will have an interest rate meeting next week.

The MNB will jump in if there is a problem

Some changes can occur due to market aversion or worsening perception of the forint during the year for any domestic reason. At that time, the exchange rate of the forint against the euro may rise above 365, in fact, “it cannot be ruled out that it will look back at last year’s peaks,” said Trippon, who said – and Nemeth agrees – that this will probably only be temporary. has the means to prevent either excessive weakening or unwanted strengthening. For example, they change the interest rate to one-week deposit instruments: if the forint weakens, they can raise the interest rate at one of their weekly meetings. And if it strengthens too much – which would not be good for the MNB due to the exports pulling the Hungarian economy – the central bank could still intervene, for example by closing the base rate (0.6 percent) and a one-week deposit (0.75 percent). the difference.

However, according to the leading analyst of CIB Bank, we are still not here, for now the forint is where most analysts expected, for example, according to the basic scenario of the CIB, to ask for 356 forints for one euro from 2021. “It’s very clear to see a factor that could take the forint out of its current position,” he said. According to Trippon, a possible opening of quarantine would not immediately encourage the forint, because in the short term, it is more important for the exchange rate how yields in the USA and Germany develop, and at the same time the global appetite for risk.

In addition, according to government statements in recent days, no opening is expected in the near future, and an even greater tightening is more likely. So, overall, the situation can be improved only from the second quarter, and a lasting recovery can be expected in the second half of the year at the earliest. If, on the other hand, everything is optimistic, the exchange rate could strengthen to 350-355 by the end of the year, and the pessimistic version predicts the exchange rate of the euro between 365 and 370, Trippo believes.

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David Nemeth does not expect too much fluctuation, even if the government decides to seriously close the houses. The reason is that, although the economy could start later, the Czech Republic has ordered unprecedented closures, for example, in the Czech Republic, and it does not seem to have such a big impact, said a senior macroeconomic analyst at K&H Bank.

At the same time, the fact that some foreign investors have taken a speculative stance against the forint in recent days may weaken the exchange rate in the short term. “Because of this, some shortages of forints have developed on the market, but it is not yet known how long it will last,” he said.

Of course, the big question is how inflation will develop – says Nemeth, who does not expect a weakening trend by the end of the year, but a side rate with the euro exchange rate between 355 and 365. On the other hand, he expects the next devaluation in the coming years, mainly because MNB it currently has a higher inflation target than the eurozone, which in itself may justify a weakening of the forint.



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