Real interest rates mean great returns on the Hungarian forint
Published:
14 April 2004 y., Wednesday
Around the globe, people are looking at Hungary’s real interest rates. With consumer prices up 6.6% year-on-year in January and short-term interest rates close to 12%, there is no other emerging market that offers a better real return on your money.
Massive capital inflows confirm that there is indeed an opportunity. Hot money has pushed up the Hungarian forint to less than Ft 250 per euro. This was the level at which the forint was traded before a flow of adverse macroeconomic data and confused central bank statements drove the currency to its bottom level of over Ft 270 per euro during the second half of 2003.
Is it still worthwhile changing your humble savings into Hungarian forints to benefit from these high interest rates? The answer depends on the exchange rate at which you will convert your money back into your home currency at the end of the day.
Let us suppose you have Ђ100,000 to invest. You can invest it in T-bills from EU countries, giving you a return of around 2%. Alternatively, you change your Ђ100,000 into forints at a rate of Ft 248 and buy Hungarian T-bills for around Ft 24.8 million. This will render you a yield to maturity just below 12%, so that at the end of the year you will own around Ft 27 million.
Provided that you can change your money back into euros at the same rate, you would increase the yield on your investment sixfold compared to investing in euro T-bills! (from 2% to 12%). The problem is that you don’t know the future exchange rate. It is possible, however, to sell the whole amount on the futures market, but only at a rate of Ft 263. Hedging would cost you as much as you would gain from the interest rate differential. Alas, no free lunch.
More interesting returns are available if you’re willing to take a bet on the Hungarian forint. If you’re confident that the forint will stay firm below Ft 263 per euro until the end of December, there is no need to hedge your forint exposure. Is there any reason to be confident about this?
There are, in my opinion, two reasons that make it unlikely that the National Bank of Hungary (MNB) will let the forint depreciate again below a level of around Ft 263 per euro. The first reason is obvious, the second reason more complex in nature.
Šaltinis:
bbj.hu
Copying, publishing, announcing any information from the News.lt portal without written permission of News.lt editorial office is prohibited.
The most popular articles
The EBRD is making a €4 million equity investment in Geofoto, a Croatian geodetic company offering mapping, geodetic survey, photogrammetry, geoinformatics and aerial survey services, to support its drive to expand operations on international level.
more »
Nordea came out of 2009 in an even stronger position, despite one of the most challenging years for decades. Risk-adjusted profit increased 22% and our capital position and cost of funding are among the best in Europe.
more »
MEPs gave the green light on Thursday for EU funding to help Europe's unemployed start up small businesses.
more »
MEPs are deeply concerned about the long-standing and growing presence of al-Qaeda, and the deteriorating security, social and economic problems in Yemen, which they think could destabilise neighbouring countries.
more »
At the start of a new decade, Sub Saharan Africa is reeling from the effects of three major global crises – food, fuel and financial – that have reversed many of the economic achievements of the last 10 years and left some growth projections at levels below those of 30 years ago.
more »
The 5th High-level Seminar of Central Banks in the East Asia-Pacific Region and the Euro Area was jointly organised by the European Central Bank and the Reserve Bank of Australia, in cooperation with the Hong Kong Monetary Authority.
more »
The EBRD and European Fund for Southeast Europe are boosting the availability of financing to private businesses in Moldova with a $10 million loan to ProCredit Bank in Moldova for on-lending to micro and small enterprises.
more »
The EBRD is supporting the development of the retail infrastructure in Croatia with a €68 million loan to finance the construction of a modern shopping centre in Split, the second largest city in Croatia.
more »
The European Bank for Reconstruction and Development has agreed to sell its 15 percent stake in OAO Swedbank Russia to its parent and major stakeholder, Sweden’s Swedbank AB, a move which would give it full ownership of its Russian subsidiary.
more »
The Ministers of Industry took the first steps in San Sebastián today to make the electric vehicle a reality in Europe and agreed that European institutions, with the EC at the head, should lead a common strategy on electric vehicles.
more »