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Purchasing Power Dynamics in CE

Source: GfK

the EU in 2020 and 2021, the Hungarian currency has become the weakest based on the recent FX change and HUF/EUR rate was climbing to new highs every week in January/February. The single biggest reason behind the weak local currency is the extremely loose monetary policy: real interest rates are deeply negative in Hungary and by far the lowest in the region - especially in the light of recent tightening in the Czech Republic.

The current economy is described as a “high pressure economy” which is characterized by dynamic economic growth relying on strong domestic demand. Consumption and investment are fueled by robust wage increase and growth in corporate lending, both double-digit figures in 2018 and 2019. However, rapid increase to the inflation rate can point to an overheating economy which is not desirable and can be prevented only by a stricter monetary policy. This does not necessarily require an increase of the base rate (currently at 0.9%).

Inflation and FX Rate

Source: MNB