EUR/HUF above 300 would harm economy, says City

MNB

Hungary is now less sensitive to HUF weakness because the share of foreign currency debt in the overall debt burden is lower, but if the EUR/HUF exchange rate rose above 300 for an extended period, it would still be harmful, London-based emerging markets economists said on Monday.

Analysts at HSBC, the biggest UK-based global financial services group by total assets, said in a report titled "The dangers of a weaker forint" that an EUR/HUF exchange rate persistently above 300 would disrupt the downward trend in government debt, lift household and corporate debt servicing costs, and could eventually put financial stability at risk.
Foreign holdings of HUF-denominated government debt have just hit a record high of 45% of the total, so any outflows accompanied by a weaker HUF would have significant negative implications for the economy through elevated debt servicing costs for households and corporates.
FX-denominated debt in total debt of households and corporates has fallen in the last couple of years. This reflects deleveraging by EU banks in the CEE region, as well as the government-run scheme of FX debt repayment for households.
This adjustment has weakened the balance sheet impact of potential HUF exchange rate volatility, but the total exposure still remains high, at 28% of GDP, in regional comparison as it stood at 23% of GDP in Romania and 15% of GDP in Poland in 2012. "We believe that the comfort zone for policymakers is a rate in the 280-290 range", HSBC's London-based economists said.

ADVERTISEMENT

Reforms to raise productivity would strengthen recovery - OE... Analysis

Reforms to raise productivity would strengthen recovery - OE...

Meeting called to address Pegasus spyware lacks quorum  Parliament

Meeting called to address Pegasus spyware lacks quorum 

Skanska commercial dev unit names new EVP of operations Hung... Appointments

Skanska commercial dev unit names new EVP of operations Hung...

Zsa Zsa Gabor's ashes buried in Budapest City

Zsa Zsa Gabor's ashes buried in Budapest

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.