Stable Forint Seen as Cornerstone of Hungary’s Economic Growth

Hungary’s central bank governor Mihály Varga underscored the importance of currency stability, calling it essential for curbing inflation and laying the foundation for stronger growth.

“Hungary’s economic convergence can’t be based on currency devaluation,” Varga said at an annual economics forum in Veszprém, stressing that the forint’s impact on prices has doubled compared to a decade ago.

The comments reaffirmed the central bank’s commitment to tight monetary policy, which has helped push the forint to its strongest level in nearly a year against the euro. The National Bank of Hungary has kept its benchmark interest rate at 6.5% for 11 consecutive months, a level matched only by Romania within the European Union.

Varga warned that “unpredictability has become the new defining force of the global economy,” pointing to slowing growth in major economies, record-high public debt levels not seen since World War II, and stubbornly elevated inflation in Hungary. At home, inflation expectations remain anchored at 8% annually (almost double the headline rate), leaving companies hesitant to invest and forcing the economy to lean heavily on consumption.

Hungary’s growth continues to lag the EU average, while persistent inflation has fueled voter frustration over the cost of living. This has heightened political pressure ahead of the next parliamentary elections, where Prime Minister Viktor Orbán’s Fidesz party trails in most polls.

“In 7 out of the last 12 quarters, Hungary’s GDP has declined. The only other time this happened in post-transition Hungary was during the 2009 crisis,” said Mihály Varga.

Discussing the details of the modest growth in the second quarter, he noted that Hungary’s GDP growth lagged behind both the V3 countries and the EU average. “In exports we remain competitive, but what is clearly driving the Hungarian economy is consumption. The real sign of a critical situation, however, is the state of investments. In this area, Hungary’s performance lags significantly; the decline in fixed capital formation can be observed in both the public and private sectors,” he said.

Following Varga, Economy Minister Márton Nagy also emphasized the importance of a strong currency, marking a shift from his earlier calls for monetary easing. On a trip to London this week, Nagy told investors that a firmer forint was “more of an advantage” for the economy, according to Reuters.

Hungary’s strict monetary stance has so far balanced out the risks posed by looser fiscal policies. But fiscal slippage could threaten the country’s credit standing, with S&P Global Ratings set to review Hungary’s sovereign debt next month. The agency currently rates the country at the lowest investment grade with a negative outlook.