The Hungarian forint has experienced a rapid depreciation in the fourth quarter of 2024, presenting a significant challenge for the country's economy. Despite appreciating against the euro since the start of the year, the forint's exchange rate remains highly volatile. This volatility is largely attributed to its sensitivity to both positive and negative external factors. The recent depreciation has played a crucial role in fueling rapid inflation, reminiscent of the 2021-2022 period.
During the inflation shock of 2021-2022, the pass-through effect of a weaker currency on prices was notably strong. The forint's sensitivity to external influences persists as a defining characteristic, making its exchange rate difficult to predict. The appreciation against the euro, however, has been a key feature since the beginning of 2024, offering some relief amidst the ongoing volatility.
The Hungarian National Bank (MNB) has been actively responding to these challenges by adjusting its monetary policy. To combat the forint's weakness and heightened inflation risks, the MNB has paused rate cuts, maintaining the policy rate at 6.50 percent since the end of the third quarter of 2024. This decision underscores the central bank's commitment to stabilizing the currency and controlling inflationary pressures.
Despite these efforts, the forint's depreciation continues to exert a significant impact on inflation. The forint's exchange rate is expected to remain sensitive to external factors in the future, posing ongoing challenges for economic stability. As Hungary navigates these turbulent waters, household consumption emerges as a primary growth driver, anticipated to fuel economic expansion in 2025 much like it did in 2024.