EUR/HUF likely to stabilize between 320 and 330 after depreciation – Erste Group Research

In early July, the Hungarian forint had depreciated sharply against the euro, reaching a historically weak exchange rate. International factors, such as risk premium shocks of emerging markets, in conjunction with normalization of monetary policies of major central banks, added as triggering effects.

In the meantime, the Hungarian central bank has not abandoned its ultra-loose monetary policy, resulting in higher volatility of the forint than that of regional peers. The tightening cycle of the Hungarian central bank is likely to follow the European Central Bank’s behaviour.

High trade and current account surpluses might ease the possible negative effects of increased risk aversion and contagion effects from other emerging markets, such as the Turkish turmoil, on the forint rate. Even if the trade surplus indicates a downward trend, favourable summer trade figures might show a slower declining trend in trade surplus figures.

Meanwhile, maintenance of a dovish monetary policy by the central bank does not imply any significant appreciation, either.

“Thus, the EUR/HUF could be stabilized in the range of 320-330 in the following period with 325 as a point estimation”, added Erste Group Research in a report.