The forint was the strongest in relation to the zloty in 17 months

Hungarian forint appreciates against other currencies on Tuesday. Course EUR / HUF at one point it even fell below 349 and was the lowest in 2 months. Similarly USD / HUFwhich slipped to 297,28. The forint is also gaining against the zloty. Course HUF / PLN is now the highest in 17 months.

EUR / HUF daily chart. Source: Tickmill

The Forint is Gaining - Rates Up?

The strengthening of the Hungarian currency is a game for a raise interest rates. Expected today Bank of Hungary, for the third time, raising interest rates. This time by 30 basis points (bp). As a result, the main rate will increase to 1,50 percent. from 1,20 percent If we compare this with the level of interest rates in Poland (main rate at 0,10%) and the reluctance of the Monetary Policy Council to raise them quickly, it will be immediately clear where this weakness of the zloty against the forint came from.

The Bank of Hungary started raising interest rates in June to curb the high inflation in Hungary that had been sustained for many months. One of the highest in the European Union. In June, CPI inflation was at the level of 5,3%. R / R. For comparison, in Poland it was then 4,4 percent. However, already in July, the roles were changed. Inflation in Hungary slowed down to 4,6%, while in Poland it soared to 5%.

The market expects that the Bank of Hungary will continue to raise interest rates in the coming months in an attempt to bring inflation down to the target. According to forecasts, at the end of 2022, the main rate will amount to 2,4%, i.e. twice as much as today. 

The prospect of further tightening of the monetary policy by the Bank of Hungary should support the forint in the coming months. Including against the zloty. At least until the chances of a rate hike in Poland appear on the horizon.