Hungary Needs a Strong Forint

"It's time to say that a strong forint, not a weak one, is in the national interest", writes investment expert Viktor Zsiday in a post published this week, commenting on the weakening of the Hungarian currency HUF) in recent weeks.

He is quoted by the business news site napi.hu as saying that it should be made clear that if there are no serious imbalances in a country, then economic policy (primarily by the central bank) will, within certain limits, allow the exchange rate to go where it wants.

Since Hungary has not experienced such large imbalances in recent years, the forint has been steadily weakening, even with inflows of EU funds and a surplus current account. It is therefore quite clear that such weakening of the forint was deliberate, according to the expert. The main goal of economic policy has been to maintain growth at all costs, but this has become increasingly difficult as the country’s economic cycle has entered a mature phase.

"This was when the magic word 'high-pressure economy' was coined, which really just means plain overheating. This required the ever-increasing use of monetary and fiscal stimulus. This was compounded by the COVID-19 crisis, during which stimulus on all fronts was really ramped up. However, this could only be achieved with increasing budget deficits and money pumping, and one of the costs was the rapid depreciation of the forint," the expert said.

The weak domestic currency is adding to the already extreme international inflationary pressures and is increasingly encouraging all economic actors to calculate, save and borrow in euros rather than the unreliable forint," he added. We are probably at the last moment when the credibility of the forint can still be saved: otherwise, the euro will introduce itself. This may not be a big problem for the public, but it is for economic policy: it will lose an important tool, because if people do not use the forint and everyone prices and calculates everything in euros, then monetary policy will also become quite ineffective.