"Maintaining the current exchange rate regime provides the best conditions for the development of the real economy and for financial stability. Despite its theoretical advantages, switching to a floating exchange rate regime would, on balance, be unfavorable for Hungary," the ministry said.
Hungary currently uses an exchange rate regime whereby the forint's rate is allowed to float within the confines of an intervention band, defined as 15% on either side of a fixed midpoint, HUF 282.36 to the euro. The extreme values of the intervention band are therefore HUF 240.01 and HUF 324.71 to the euro. Central bank MNB is obliged to intervene on the market if these barriers are breached.
In the concluding statement of a recent staff visit to Hungary, the IMF said it is "a good time to consider a move towards exchange rate flexibility," mainly as a means of more flexible risk management. "If global imbalances unwind, Hungary could get caught in the tailwinds of that adjustment, as currencies and interest rates are realigned. These external developments would interact with domestic vulnerabilities in important and potentially unpredictable ways," according to the IMF.
However, the Hungarian government is concerned that eliminating the intervention band "could lead to such an appreciation of the forint that would greatly erode the competitiveness of the Hungarian economy and drive certain industries into bankruptcy," according to the ministry's statement.
