Hungary: Forint hits fresh record low in April
The Hungarian forint (HUF) nosedived against the euro over the past month and hit an all-time low of HUF 365 per EUR on 3 April. This marked an 8.0% depreciation from the same day in March, while the currency was down 12.5% year-on-year and 9.4% year-to-date. Market fears over the economic impact of the fast-spreading Covid-19 pandemic lead the depreciation and came despite the Central Bank curbing cash available via weekly deposit tenders.
The forint has been on a weakening path relative to the euro since the start of the year amid loose monetary policy and a subdued global economy. However, the rate of depreciation increased sharply in mid-March due to coronavirus-induced market panic leading to a sell-off in risky assets and increasing concerns over the economic impact of the pandemic. In addition, the parliamentary decision to give the government and Prime Minister Viktor Orban open-ended powers on 30 March further contributed to the dive.
To halt the slide of the forint and in an implicit tightening move, the Central Bank announced on 1 April a new measure of regular one-week deposit tenders for banks at its 0.90% base rate, compared to the standing over-night deposit rate at minus 0.05%. According to the Bank, this would help reduce the stock of overnight deposits at commercial banks and improve the efficiency of banks’ liquidity management. While the move provided a temporary relief on the currency, it was short-lived as the forint fell to its record low on 3 April and it remains to be seen how effective the move will be over a longer term.
As things currently stand, the forint is seen recovering some of its losses ahead, though continued heightened market volatility, a muted global economy and accommodative monetary policy are set to continue exerting downward pressure.