Exchange Rate in Hungary

Hungary - Exchange Rate

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.

FocusEconomics panelists are currently revising their forecasts based on these latest developments and new Consensus Forecasts will be released on 7 April.