Hungarian Forint: Euro ambitions put HUF at risk - Commerzbank

Hungary’s new medium-term framework aims to meet the criteria for euro adoption by 2030, drawing scrutiny from Commerzbank’s Tatha Ghose. Despite ambitious assumptions for fiscal consolidation and growth, debt remains above EU thresholds, with structural reforms and lower inflation still uncertain. As markets anticipate that the Hungarian National Bank will enter ERM II with an undervalued HUF, the forint could remain towards the weaker end of its trading ranges in the run-up to convergence.

HUF Faces Pressure as Euro Convergence Approaches

"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."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Find out more.)