Forint plunges against Swiss franc
The forint weakened sharply against the Swiss franc in the morning on Thursday, after the Swiss National Bank (SNB) said it was discontinuing its minimum exchange rate of CHF 1.20 to the euro.
The forint traded at 315.43 to the Swiss franc around 1 in the afternoon on Thursday, weakening from 265.51 around 10 in the morning.
The forint weakened to a historical low of 324.15 from 318.92 against the euro during the period.
The forint slid to 277.23 from 271.15 against the dollar.
The SNB explained the decision to scrap the franc's floor citing the depreciation of the euro against the dollar.
"The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified," the central bank said in an announcement published on its website.
The SNB also said it lowered its interest rate on sight deposit account balances that exceed a given exemption threshold by half a percentage point to -0.75pc. "to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions".
Hungary is in the process of phasing out retail lending stock denominated in foreign currency, much of it in Swiss francs. CHF-denominated loans were once the most popular retail lending product in Hungary.
Parliament approved legislation on the conversion last November, setting the exchange rate for the conversion at the average National Bank of Hungary fixing between June 16 and November 7, 2014 or the fixing on the day of November 7, 2014, whichever is more favourable to borrowers.
The legislation effectively sets the rate for the conversion at HUF 256.5 to the Swiss franc and HUF 309.5 to the euro.
In a statement published on its website early in the afternoon on Thursday, the National Economy Ministry said the government decision to lock in the conversion rates had saved borrowers more than HUF 500 bln so far.
The ministry noted that in the case of state debt, FX debt is converted into euros by the Government Debt Management Agency (ÁKK), thus the appreciation of the Swiss franc will not have a significant impact on the debt level. Swiss franc-denominated loans taken over from local governments last year have been repaid by ÁKK and will not raise the level of state debt either, it added.
"Today's step by the Swiss central bank confirms the government's efforts to reduce FX debt, which have in the past years significantly reduced the country's vulnerability, both for Hungarian society as a whole and for individuals," the ministry said.
"We will continue to reduce debt, including FX debt, in the future," it added.
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