Central bank: Firmer forint would serve balanced development of economy

Analysis

Low inflation paired with a gradual strengthening of the forint -- in line with an increase in productivity -- would serve the balanced development of the Hungarian economy, National Bank of Hungary governor András Simor said at an event organized by a regional business alliance in Vasegerszeg on Tuesday.

“Obviously, as the economy develops, price levels will rise to levels in the eurozone. Two paths can be followed: there can be inflation...or the forint can strengthen and prices in euros can converge,” Simor said, adding that the he would rather see the forint firm as inflation brings with it “other costs, uncertainty, risk and a lack of propensity to make savings.” He noted that the forint must firm no faster than the increase in productivity or it would “destroy the economy”.

Simor said the experience of other countries in the region, such as the Czech Republic, Poland and Slovakia, show that exports were not hurt when their currencies were revalued. The forint has traded between 240 and 260 to the euro on average for the past 7-8 years. Simor stressed that the forint’s rate would not simply rise steadily: there will be swings. “Only the problem is that (the currency) swings more in Hungary, than in other countries,” he said.

Simor attributed the forint’s volatility to the bigger lack of confidence in the Hungarian economy compared to other countries. The uncertainty here is bigger, the changes here are bigger, partly because economic policy “pushes and shoves in a crazy way”. “If the forint’s hectic movements are to slow and then end, obviously a dependable monetary policy is necessary...but also a very dependable economic policy.”

Hungary’s forint has firmed markedly recently, passing the key HUF/EUR resistance barrier of 240 a week ago. Some analysts say the strong forint may have provided the impetus for central bank rate-setters to keep the base rate on hold at a meeting on Monday, rather than raise it 25bp as expected by the market. (MTI-Econews)

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