Hungarian Forint: Euro ambitions leave HUF vulnerable - Commerzbank

Commerzbank’s Tatha Ghose assesses Hungary’s new medium-term framework targeting Euro adoption criteria by 2030. Ambitious fiscal consolidation and growth assumptions leave debt above EU thresholds, while structural reforms and lower inflation remain uncertain. Markets expect the Hungarian National Bank to enter ERM II with an undervalued HUF, so the Forint may stay near weaker ranges ahead of convergence.

Convergence story leaves HUF vulnerable

"Hungary’s government published its medium-term economic framework today, pledging to meet all criteria for euro adoption by 2030. The government and Hungary’s National Bank (MNB) will begin preparations for ERM II entry, including discussions about banking-union membership and the EU’s supervisory and resolution mechanisms."

"Among the major points, euro adoption is always getting centre-stage in recent government and central bank commentary. Probably because it is intended as a verbal intervention to stabilise the forint by signalling a pro-EU approach. But, as we have written before, this may not work. The market already recognises that it will be in MNB’s interest to enter ERM II with HUF slightly undervalued, not overvalued (easier to prevent volatility that way)."

"Hence, our conclusion remains unchanged: HUF may trade near its weaker ranges leading up to ERM II, while the government still has to deliver multiple difficult interim milestones, without letting this ruin its popularity – if its popularity fades, the FX market will stop pricing-in ERM II – because a return of Fidesz would automatically spell the end of that plan."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)