The depreciation of the Hungarian forint is accelerating relative to its Eastern European peers, especially after a negative GDP reading in the third quarter. Against the euro, the forint has surpassed the level of 405 and seems to be heading towards the 410 mark. Commerzbank’s EUR/HUF forecast is 415.0 by the end of 2025. But this current development does not seem to be just an orderly progression towards that goal, says Tatha Ghose, currency analyst at Commerzbank.

MNB’s tough stance is justified

“The guilder is prone to higher volatility and high beta swings during episodes of risk aversion, and can get a bit out of control, necessitating emergency responses from the MNB. In such scenarios, exchange rate transmission may become a dominant driver of inflation; Therefore, the MNB would like to stop the developments as soon as possible.”

“What we mean by intervention is that the MNB may have to go out and further modify its monetary policy guidance verbally, possibly warning of a reversal of rate hikes should the situation worsen.”

“If things were to move in this direction, government support in the media would be crucial. Any contradictory comments from government officials could have a quickly destabilizing effect. Thereafter, in the event that market conditions continue to worsen for external reasons and EUR/HUF reaches, say, 420, real rate hikes would be necessary. Even if they were not strictly necessary for inflation goals, they would be necessary for the exchange rate, because this would be the way in which the market would test the central bank.”