(Bloomberg) -- Hungary’s Prime Minister Viktor Orban faces a conundrum how to bring his country out of a recession as the weakening currency limits the scope for monetary and budget stimulus.
The forint dropped to an almost two-year low against euro on Thursday, extending its losing streak to seven days and capping the deepest monthly drop since July last year. The selloff intensified this week after data showed gross domestic product unexpectedly shrinking from July to September, the second quarterly contraction in a row.
“The economy would need monetary easing, but at these forint levels, the central bank could not provide that without risking an exchange-rate crisis,” said Peter Kiss, the head of portfolio management at Amundi in Hungary.
Forint’s depreciation forced policymakers to halt interest-rate cuts this month and keep the benchmark rate at 6.5%. The central bank has also declared it’s ready to pause the easing for a “sustained period,” and money market traders priced out almost all further rate reductions for at least the next six months.
That has failed to shield forint from more weakness as a global aversion to riskier assets — before the US presidential election — underscored Hungary’s economic risks. Those include a worsening fiscal stance and prospects of more budget slippage ahead of the 2026 general elections, according to Kiss.
Two opinion polls showed this month the Tisza party of Orban’s main challenger, Peter Magyar, ahead of the ruling Fidesz. The government has responded to growing economic and political headwinds with new measures, including additional taxes on the financial sector and encouraging people to invest in real estate through private pension withdrawals.
“Lower than expected growth makes it harder to reach fiscal goals, and at the same time, it increases risks of extra stimulus,“ said Peter Virovacz, an economist at ING Bank Hungary.
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