Policy missteps undermine the forint
Overview:
The Fidesz government’s policy mistakes since coming to office have compounded existing problems – high public debt to GDP and large exposure to FX loans. In particular, recent moves to undercut the independence of the central bank and other institutions have brought strong criticism from the EU and halted negotiations on an IMF program. In recent days, Prime Minister Orban has moderated his tone offering some hope that some of these controversial measures could be amended. There is, however, much to do before an IMF agreement is in place. Moreover, the immediate economic outlook is bleak with growth slowing and inflation set to rise. The irony is, though, that the underlying balance of payments position is strong and the forint is probably undervalued according to fundamentals.