Forint weakness is driven by EU report, budget, weak retail sales and industrial output

HUNGARY - In Brief 06 Jul 2023 by Istvan Racz

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The forint suddenly weakened by some ten units or close to 3% against both EUR and USD over the last 24 hours. In a longer term perspective, this is not surprising, as EURHUF has become increasingly contractionary over the recent months: in June, its daily average level of 370.72 meant a 6.6% yoy forint appreciation, which followed 3.1% yoy strengthening in May, 0.2% yoy forint weakening in April, and 10.9% yoy forint weakening in December. The EURHUF started this year at 400.25, so one could say that now, as the MNB has started to reduce the sterilisation rate, the forint is just starting to return to where it belongs. But even so, what sparked the latest downward move by the HUF, after a long period of stability, may be interesting. It was a combination of negative factors, such as: 1. The EU came out with its rule-of-law report in recent days. This was not Hungary-specific, and it still could not include a full appraisal of the latest judicial reform. So, its Hungarian chapter only summarised what had been know already, that Hungary made progress with the EU's standing reform requirements, but it did still much less than required overall. The EU's budget commissioner was quoted as saying that the ongoing rule-of-law procedure against Hungary does not have a time limit, and so it may not conclude, if proper further progress is not achieved, even until the European Parliament election in next June, meaning that the current EU Commission, whose term expires then, may never be able to release the currently blocked development funds to Hungary. This is not really new, but it is still bad news, as much of the market appears to be in a mental state that it knows the money ...