Forint hits record low

As the national currency sinks below 320 to the Euro, a critic of the government admits that the reasons are largely outside the government’s control.

On Portfolio, Péter Ákos Bod, a former President of the National Bank and professor at Corvinus University fears that the Forint may sink further as the international energy price crisis deepens. He enumerates six reasons that have put the Forint under pressure:

• A worldwide flight to the dollar, as usual in conditions of international crisis;
• Successive moves by the Federal Reserve to raise interest rates in the US;
• Hungary’s highly energy-dependent economy;
• The ‘twin deficit’ – the simultaneous deficit of the budget and of foreign trade, caused by the sudden rises in energy prices;
• Government hesitancy and delays in reacting to the crisis;
• Uncertainty about the fate of European Union funds for Hungary. (See BudaPost, September 26.). This is the single most important reason, in his view.

The veteran professor, who 16 years ago was proposed by Fidesz as a potential Prime Ministerial candidate but has since become sharply critical of PM Orbán’s government, warns that because of the volatility of the national currency, businesses have begun trading in Euros, which will further restrict the government’s elbow room in influencing growth and inflation using traditional monetary policy tools.

Tags: Bod, Forint, inflation