Hungary could introduce the euro as early as 2031 if the government sets a goal of meeting the criteria for the common currency by 2029, Hungarian Central Bank Deputy Governor Zoltan Kurály said, quoted by Bloomberg.
In this scenario, the country could join the Exchange Rate Mechanism II (ERM II) as early as mid-2028, Kurály said today at the “Back to Europe“ conference, organized by “Portfolio“. The mechanism pegs the national currency to the euro within a certain range of permissible fluctuations.
The main scenario remains the fulfillment of the criteria in 2030 and the adoption of the euro in 2032, he added.
Prime Minister Péter Magyar, who ousted Viktor Orbán from power in April's elections, has promised to return Hungary to closer cooperation with European partners and introduce the common currency. His government has set a goal of reducing the budget deficit to 3 percent of gross domestic product (GDP) by 2030, down from an expected 7.5 percent this year.
Specific targets are due to be announced in the coming weeks, along with the draft 2027 budget and economic convergence plans.
The forint rose 0.6 percent against the euro after Kuralli's remarks, posting the biggest daily gain among 21 emerging market currencies tracked by Bloomberg. August industrial production data also provided support, showing the fastest increase since late 2022.
Investors are increasing their investments in the Hungarian currency and bonds in anticipation of a gradual convergence with eurozone levels as it prepares to adopt the euro.
Over the weekend, Magyar chaired a two-day cabinet meeting to finalize next year's draft budget, which is expected to be presented by October 15. The government must reconcile election promises of higher social spending with the need to reduce the deficit.
A deficit target of 4.5 percent of GDP in 2027 would be a positive surprise for investors, while a level of 5.5 percent or more would be a "clear disappointment," Debt Management Agency head Gergely Tardos said in an interview with Reuters published a few days ago.
According to Tardos, the yield on long-term forint bonds, which is already below that of corresponding Polish bonds, has the potential to fall to 4 percent in preparation for the introduction of the euro.
The yield on Hungarian 10-year bonds was held at 5.81 percent today. Investors said the commitment to adopt the common currency had limited the sell-off in the past three months, when rising energy prices following the Iran war rattled markets.
Kuraly stressed that Hungary should not delay joining ERM II once the government officially starts the process of introducing the euro.
“If the budget plan and the outlook show a clear commitment to adopting the euro and the market accepts it, then there is no point in delaying the start of joining ERM II,“ he said.
He said the forint's exchange rate against the euro should be consistent with the central bank's inflation target and the need to maintain the economy's competitiveness. The exchange rate strongly influences inflation through import prices.
Staying in ERM II is shaping up to be more challenging for Hungary than for Bulgaria and Croatia, the newest members of the eurozone, Kuralı pointed out. In contrast, Hungary has a freely floating currency, whose fluctuations the central bank will have to manage within the mechanism.
Source: www.bta.bg