The Hungarian currency, the forint strengthened close to 8% against the euro in the first half of this year, taking third place among emerging market currencies after the Brazilian real and the Columbian peso, senior analyst Dávid Németh of K+H Bank said on Wednesday.
The forint strengthening is a sign of investor confidence in Hungary, he pointed out. This is also supported by the fact the CDS spread, which reflects the country's risk perception, fell to around 70 basis points in June from 110 basis points in January. Hungary's CDS spread is 75 basis points below that of Romania, but it is slightly higher than Poland's and that of the Czech Republic.
In the coming period, lower inflation and the improvement in the country's perception will allow for lower interest rates. The National Bank of Hungary cut its policy rate by 25 basis points in June and said there was a possibility for further monetary easing.
These interest rate cuts could stop the dynamic forint appreciation seen in recent months, but the analyst said he did not expect a greater forint weakening unless there is a significant turbulence on international markets or if there are more negative news or data regarding Hungary than expected. The euro exchange rate could move between HUF 348 and HUF 362 in the coming weeks.
In the short term, the forint market may be influenced by details of the amended budget plan and the 2027 budget bill to be published in the fall. On the international scene, it will be important whether the US Federal Reserve and the European Central Bank will respond to inflation risks with monetary tightening.
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