The forint has fallen out of favor – This may not be just a temporary situation.
By the end of June, the market believed that a euro exchange rate above 350 forints represented a sustainable equilibrium, but recent events, such as the renewed Iranian conflict and the cessation of Russian diesel exports, highlighted Hungary’s vulnerability. The National Bank of Hungary is likely to remain vigilant, so it is unlikely that the weaker exchange rates seen before the elections will return. In the long term, a weaker exchange rate is more likely, and the possibility of interest rate cuts may also decrease.
By the end of June, the market seemed to be increasingly convinced that a EUR exchange rate of slightly above 350 forints could represent a new, sustainable equilibrium. However, this seems to be changing: the renewed Iranian conflict and the cessation of Russian diesel exports have once again highlighted Hungary’s vulnerability, which cannot simply disappear overnight after a parliamentary election. According to the MNB, we do not expect a return to the characteristic, significantly weaker exchange rate levels before the elections. However, a weaker exchange rate than in June seems more realistic in the long run, while the possibility of further cuts in the autumn, following the August interest rate cut, may be removed from the agenda.
