Currency Volatility and Hungary

As I noted last week, Hungary now seems to have lost the ‘anchor’ of a 2010 eurozone entry expectation. (see also this, and this ). As I am also indicating currency markets may well be driven at the moment by a combination of interest rate yield variations and expectations of future movements, and this may lead to increasing volatility.

Now, if we assume that between the relatively calm waters of ‘eurozone closing’ and the choppy waters of swimming alone in the open sea there must be a break point somewhere, it might not be unreasonable to ask whether Hungary may not be presently in danger of crossing that imaginary thin red line? With Hungarian interest rates currently at 6% clearly growth-needs indicate a measured pace of reductions (particularly with core inflation around 1.5%) , but CA deficits and government funding deficits in the 6% to 7% range anything substantial in the way of rate reductions looks problematic. This is why ‘slipping anchor’ on the euro-docking objective could turn out to be especially problematic in Hungary’s case, in particular given the high levels of non-forint-denominated borrowing, and the potential for secondary ‘balance sheet’ effects.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

1 thought on “Currency Volatility and Hungary

  1. Hungary’s had some rough handling from the currency markets in the last couple of years. I can see why they want to be on the Euro. Whether they /should/ want it — given what they have to do to get there — is another question.

    BTW, who’s currently slated to be the first new Eurozone member? Slovenia?

    Doug M.

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