Will Hungary’s currency be the next one to tank?

December 18, 2014


Strengthening by just over half a percentage point against the US dollar in the hour preceding this morning’s 9am joint press conference, Hungary’s currency, the forint, lost 0.6 percent of its value against the dollar over the course of that press conference and in the hour which followed.

Hungarian National Bank governor György Matolcsy affirmed that the central bank had no exchange rate policy, meaning it would not intervene to arrest the weakening of the forint, but that it remained committed to keeping inflation low.

Currency markets reacted negatively to Matolcsy’s announcement that the loan portfolio of the MKB, which the government of Hungary acquired for EUR 55 million in July, contained a “number of bad loans” and that the central bank would stand behind MKB with “all of its assets”.  Nor did markets appear to appreciate Prime Minister Viktor Orbán’s candor when volunteering that the Hungarian government was not suited to run banks, and in fact should only own them long enough to “reorganize them”.

Although Matolcsy did not say how much MKB’s “reorganization” would end up costing Hungarian taxpayers, the fact that the bank’s previous owner forgave debts of EUR 270 million when selling the bank to Hungary for just EUR 55 million–effectively paying the government EUR 215 million to take its Hungarian subsidiary off its hands–may indicate the extent of the problem.

This morning’s joint press conference follows the recent collapse of the Széchenyi Bank at a projected cost to Hungarian taxpayers of tens of billions of forints.  That cost increased by some HUF 3.7 billion (USD 15 million) following Orbán’s announcement today that a fund was being set up to compensate the bank’s depositors for some HUF 7.5 billion in uninsured deposits into which the government itself intended to pay an amount proportionate to its ownership of the bank.  While undoubtedly proving the Prime Minister’s heart to be in the right place, currency markets may have interpreted this extraordinary act of government largesse as tacit acknowledgement of its complicity in the bank’s failure.

Hungary’s currency was not helped either by the announcement at a separate joint press conference held by the Ministry for National Economy and the State Debt Management Company (ÁKK) that Hungary needed to borrow USD 25 billion in 2015 to meet its obligations.

After recovering part of the morning’s losses, the forint fell to new lows against the dollar this afternoon.




The forint has lost over 25 percent of its value against the United States dollar since Fidesz took power in May 2010, 16.5 percent over the course of 2014.


5 years

Over the past 30 days the forint has lost 4 percent of its value against the US currency.


30 days

Bad news for a government that sold USD 5 billion worth of bonds to US investors in 2013 and 2014 and which deliberately burnt its bridges with the International Monetary Fund in order to score political points at home.