Current economic policies could easily trigger another exchange rate crisis - investment expert
According to 444.hu, the investment expert said that if the US goes into recession, the economic downturn could last 4-5-6 quarters. In such a situation, traditionally two actors are able to intervene, the government by pumping money into the economy and the Federal Reserve by cutting interest rates, but now we have a situation where neither of them can help.
On the one hand, the Fed's help is unlikely, he says, because interest rates were very low, around 0%, throughout the 2010s. So businesses, the public, everybody took out a lot of cheap, almost free credit. As a result, the average interest rate on the US mortgage market is around 5%, whereas now a new loan comes in at an interest rate of around 7%. Therefore, the Fed's interest rate cuts will have no effect, and the interest rate will have to be cut many times and a lot before they have an effect. In the meantime, the US has not been a smart country, even during the boom it did not cut its deficit, which now stands at 7%, and could easily climb to 8-10% in an economic slowdown.
Regarding the implications of all this for Hungary, the expert first listed the visions of economic policymakers that have emerged in recent weeks: strong wage growth, distribution of money to companies and the public, and "that means a growing budget deficit and inflationary pressures."
The expert said that "we can continue to do this as long as the markets that buy Hungarian debt tolerate it", the question is how long they will be patient with us.
When the world is calm, it is easy for markets to tolerate a lot, but when there is a very negative global environment, they bite much harder.
Expansionary fiscal policy could be dangerous in the government bond market and could also lead to a rapid weakening of the forint, "such a recessionary situation is a very big risk for Hungary", and retail foreign exchange purchases could generate further weakening, Zsiday said.
This is what happened in Hungary in autumn 2022, when the euro was trading above 420 forints and the National Bank of Hungary (MNB) had to intervene very strongly to prevent an exchange rate crisis. Zsiday says there is a risk that something similar will happen if Hungarian economic policy wants to follow the path it is now on in a recessionary environment and subordinate everything to achieving high economic growth in 2025.
Cover photo: Portfolio
