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National Bank intervenes as Forint hits historic low

April 3rd, 2020

A centrist analyst contends that the sudden weakening of the Forint can be explained by fears over Hungary’s emergency laws rather than by economic factors, and therefore the stabilization of the Hungarian currency’s exchange rate requires the adjustment of the government’s rhetoric and legislation style.

On Wednesday, the Hungarian Forint weakened to 369 against the Euro, a historic low in the currency rate. Following the National Bank’s announcement to call one-week deposit tenders at an interest rate of 0.9, which amounts to an effective interest rate hike, the Forint strengthened to 360 to the Euro by Thursday morning.

Investment banker and analyst Viktor Zsiday writes that the sudden weakening of the Hungarian currency is not due to fundamentals. Zsiday points out that the Forint has weakened far more than any of the other regional currencies. The swift decline of the Forint is mainly due to the fact that the Hungarian government’s emergency bill (see BudaPost April 1) has been depicted in the international media as a step towards dictatorship, he suggests. Zsiday contends that fears over what is perceived as Hungary’s undemocratic turn frightens markets and thus weakens the national currency. He disagrees with such international critics, since the government didn’t have to suspend parliamentary sessions in order to introduce whatever it deems necessary, as its parliamentary group in any case occupies over two thirds of the seats. What counts here, nevertheless, is not reality but international perception, he writes. As the reason for the Forint’s weakness is political rather than economic or monetary, Zsiday fears that interventions by the National Bank will not have a lasting impact. In order to reverse the weakening of the Hungarian Forint, the government would need to change the style of both its communication and legislation, Zsiday suggests.

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