Forint: mirage vs market reality

Significant balance problems arose in the Hungarian economy in the past few years. A long-awaited reform of the public sector has not started yet and the Hungarian economy increasingly resorts to external capital. The forint’s exchange rate was fairly strong in the past few months despite the fundamental economic problems. However, as the currency’s strength lacked stable fundamentals, a rather uncertain situation started to take shape. A large part of the market expects the Hungarian currency to weaken significantly and the first waves of corrections might be felt already at the beginning of the year. The relatively small size of the forint market also makes it vulnerable, with global financial trends and changes in sentiment affecting the currency strongly. An increased volatility of international currency markets and globally rising interest rate levels may significantly affect the position of emerging market currencies.

Significant balance problems arose in the Hungarian economy in the past few years. A long-awaited reform of the public sector has not started yet and the Hungarian economy increasingly resorts to external capital. The forint’s exchange rate was fairly strong in the past few months despite the fundamental economic problems. However, as the currency’s strength lacked stable fundamentals, a rather uncertain situation started to take shape. A large part of the market expects the Hungarian currency to weaken significantly and the first waves of corrections might be felt already at the beginning of the year. The relatively small size of the forint market also makes it vulnerable, with global financial trends and changes in sentiment affecting the currency strongly. An increased volatility of international currency markets and globally rising interest rate levels may significantly affect the position of emerging market currencies.

The Hungarian population and business sector are indebted to an ever greater extent in foreign currencies. A strengthening of the forint could, therefore, reduce not only the forint value of export revenues but it can also make financing cheaper. However, one has to see the dark side of this process, which is the fact that burdens of foreign currency denominated debt may also increase substantially. When a company is preparing a business plan or a household is about to choose a type of housing loan, they should be familiar not just with their opportunities but the potential risks, as well. Regional investments of Hungarian institutional and retail investors are becoming increasingly significant because of the limited size of the domestic market, and they have to focus more and more on forint and foreign currency risks when planning ahead.
Our conference wishes to provide help in this to the players of both the financial sector and the real economy.