Hungary’s currency dropped to a record low against the euro, continuing a downward trend amid global trade tensions, fears of a no-deal Brexit and expectations for slower economic growth across Europe.
The forint weakened as much as 0.5 per cent to 331.81 per euro on Wednesday, having recently eclipsed the psychological level of 330 per euro for the first time since last summer.
It is down more than 3 per cent versus the euro so far this year, compared with a decline of about 0.8 per cent for the pound.
The fresh all-time low came two days after the Hungarian central bank held rates steady and highlighted softer domestic inflation, a sign that policymakers remain on a dovish footing. The National Bank of Hungary has been particularly dovish at a time of loosening monetary policy among major central banks. The NBH has kept rates unchanged since May 2016, when it cut the main rate 15 basis points to 0.9 per cent.
With the central bank is seen as unlikely to raise rates, global economic worries have weighed on the forint. Petr Krpata, a chief strategist at ING, said current weakness in the currency has been “primarily externally driven” by trade war fears and concerns about slower global and eurozone growth, “rather than caused by the NBH credibility issue (as opposed to the summer 2018 and 2Q19 sell-offs)”.
Mr Krpata also said the 330-per-euro level for the forint is “no longer a line in the sand” for the NBH that would push the central bank to defend the currency through tighter monetary policies.
“As long as the HUF weakness is externally driven and in line with its CEE peers, the Hungarian authorities can tolerate it, in our view. In fact, the current weakness is likely to be welcomed given the anticipated slowdown in domestic economy as well as the still high (and above 3%) inflation,” he wrote in a note to clients.
Hungary’s economy has grown at a faster pace than other members of the EU. In the second quarter, GDP increased at a 4.9 per cent rate, according to a preliminary reading.