Hungarian Forint: IMF urges reforms before euro timetable – Commerzbank

Commerzbank’s Tatha Ghose reviews the IMF’s Article IV assessment on Hungary, stressing that euro adoption cannot substitute for structural and fiscal reforms. The IMF calls for front‑loaded consolidation and phasing out distortive policies, while welcoming MNB’s pause in rate cuts and new 2.5% inflation target. Ghose argues only combined fiscal, structural and hawkish monetary policy can sustainably strengthen the Forint.

Reform demands and Forint outlook

"IMF’s just published Article IV assessment on Hungary was informative on various topics, in particular the needs for deeper reforms and fiscal consolidation (IMF estimates fiscal deficit at 7-7.5% of GDP this year). The assessment also provided a reality check on Hungary’s push to announce a timetable for euro adoption."

"Under unchanged policies, the deficit would remain above the Maastricht threshold through the medium term, while public debt would continue rising."

"IMF calls for credible, growth-friendly and front-loaded fiscal consolidation, combining lower subsidies and administrative spending with tax reform."

"Monetary policy is equally important. IMF welcomes MNB’s decision to pause rate cuts and notes that the new 2.5% inflation target from January 2028 necessitates a more hawkish stance."

"But IMF’s point is straightforward: the euro can provide an anchor for reform, but is no substitute for the reforms themselves; in other words, euro adoption can be adopted as a medium-term prospect, not a near-term solution to Hungary’s economic or FX problems."

"This will not suffice to boost HUF valuation sustainably though: only fiscal and structural reform combined with an appropriately hawkish monetary policy (month-on-month inflation is sharply accelerating) would generate forint strength."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)