Hungary’s central bank is ready to act if necessary to prevent disruptive movements in the forint’s exchange rate, a statement by the National Bank of Hungary (NBH) said on Monday.
At 2.30 pm local time, the NBH, the Czech and Polish central banks published statements to the same effect, making currencies in the region respond by strengthening, central bank president Andras Simor told the press.
The forint firmed to 293 against the euro on Monday afternoon, after trading 304 to the euro earlier.
Analysts polled by MTI said it was more the coordinated action of regional central banks that made the forint strengthen than the central bank decision to keep the base rate on hold earlier on Monday.
While some exchange-rate adjustment is appropriate in Central and Eastern European economies, excessive depreciation that is not justified by economic fundamentals can be disruptive and should be avoided, the NBH statement said.
Simor declined to comment on whether the central bank had interfered in the interest of preventing further forint weakening.
On a different subject, Simor said the central bank agrees with the proposals put forward by the Reform Alliance, a body of experts and academics, for more substantial spending cuts than the government had pledged. Simor said the package (outlining spending cuts worth 330 billion forints in 2009) will not be painless to implement, but failing that, the pain could be even bigger.
Darn, just a little late on this one. If the local society continues to secure loans in foreign currency, then you will not be able to prevent the decline in the local currency. Banks want their money and they want it now! Foreign currencies are not doing so well in this downturn either. When their markets take a hit IE, housing, sovereign wealth funds, etc, they are not in the business or entirely able to rescue currencies of a gone by era. Eastern European societies must look forward to alternative funding in short term so that they are better situated to enter the common Euro currency. This will include introducing strong short term austerity measures to meet the end goals in the long term.