Hungary's Forint Faces Weakening as Fed Stays Tight and Economy Shows Modest Growth

The Hungarian forint benefited from post‑election optimism and a high interest‑rate differential in the first half of 2024, staying near the 360 EUR/HUF level. The Magyar Nemzeti Bank (MNB) used favourable June inflation (1.7%) to lower its base rate to 5.75% in July. However, an impending Federal Reserve decision that is likely to keep U.S. rates high narrows any further easing space, eroding the interest‑rate shield that has attracted foreign capital.

At the same time, Hungary’s economy is not contracting. Official data show a 1.7% raw and 1.6% seasonally‑adjusted growth in Q2 2024, ending three to three‑and‑a‑half years of near‑zero performance. Industry and services, notably tourism, are registering gains. Former central‑bank governor Bod Péter Ákos emphasised that the recovery is modest but positive, while caution remains among firms that have kept cash in bank deposits rather than investing.

The combined effect of a strong USD, volatile oil prices and the reduced rate differential poses a risk of renewed import‑driven inflation and could press the forint lower, even as the domestic economy slowly expands.