Since 2004, the Hungarian forint has lost half of its value against the euro, while the Polish zloty, for example, has remained stable and the Czech koruna has even strengthened.
Over the past two decades, the exchange rate between the Hungarian forint and the euro has typically moved according to inflation differentials between Hungary and the eurozone, according to GKI Economic Research Co.
The year 2023 broke the pattern, with inflation in Hungary significantly higher than in the euro area, but the forint still managed to strengthen. The main reason for this, according to the GKI, is that the central bank set a high benchmark interest rate to counter inflation, and the favourable yields attracted investors, strengthening the currency, Telex reports. This trend is a loss for domestic exporters, which could also weaken export-oriented industrial production.
Changes in the euro-forint exchange rate over the last 20 years
Photo: depositphotos.com
GKI published an analysis looking at the euro-forint exchange rate from a historical perspective, reviewing the 20 years since EU accession. They wrote that the exchange rate remained relatively stable in the first four years after Hungary’s accession to the EU until 2008 when the financial crisis changed the situation and brought a sharp depreciation of the currency. The forint weakened by 12 percent against the euro in a year, and the central bank started to devalue the currency.
The aim was to attract capital investment, but at the same time, it also increased the attractiveness of working abroad for Hungarians and spending holidays in Hungary for tourists. On the flip side, it became more expensive for Hungarians to go on vacation abroad, and it became more expensive for the general public and the corporate sector to buy imported goods.
The end of the Covid-cycle meant an 8 percent fall in 2020, when public debt also soared due to government spending. The exchange rate was stable in 2021, then another drop came in 2022, after which the euro cost 9 percent more when it almost reached HUF 430. The main reason for the decrease was the Russian-Ukrainian war and the resulting energy crisis, but the government’s spending during the elections did not help the public deficit either.
In 2023, the forint finally started to strengthen, with the value of the domestic currency averaging 2.4% higher than in the year of the energy crisis. In 2024, the forint has weakened again, losing 3.7 percent in the first half of the year.
The deterioration is most striking when compared with regional currencies. Romania’s depreciation was similar to Hungary’s, with the forint losing 52 percent and the Romanian leu 23 percent since 2004. The Polish zloty is at roughly the same level as 20 years ago, while the Czech koruna has gained 24 percentage points. According to the GKI, a higher proportion of Poles and Romanians work abroad, so their remittances are strengthening the currency. They also say that the “conversion of EU subsidies into forints is done through the central bank”, which is counteracting the strengthening of the forint.
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