The forint’s weakening fits the trend in the region, but will require immediate and significant cuts in budget expenditures, Takarékbank analyst Gergely Suppan told MTI on Tuesday, after the forint reached fresh all-time lows.
From the competitiveness angle, the forint ought to be allowed to weaken together with the other currencies in the region, but a further softening, on the other hand, could create serious worries for the Hungarian financial system, Suppan said.
The National Bank of Hungary (MNB) has only limited possibility to take steps to prop up the forint, and raising rates in the current recessionary environment would just fuel the flames, he said. The MNB could even continue to cut rates, as the real interest rate is still high.
Intervention by the central bank is unlikely as its foreign reserves are too low, he added. The only solution is to cut budget expenditures, including social and welfare spending, Suppan said. Tax reform is not enough. Suppan did not see a change in the trend any time soon. The situation could improve if recessions in big European economies ease, but no earlier than May. (MTI-Econews)