Hawkish Central Banks and Currency Resilience: The Case of Hungary and the Czech Republic

In a landscape of global economic uncertainty, Eastern Europe's Hungarian forint (HUF) and Czech koruna (CZK) have emerged as standout performers, driven by the hawkish stances of their respective central banks. The Hungarian National Bank (MNB) and Czech National Bank (CNB) have adopted divergent yet complementary strategies to stabilize inflation and bolster currency resilience, offering investors a compelling case study in monetary policy effectiveness.

The Czech Koruna: A Cautionary Tightrope

The CNB's approach in 2025 has been marked by measured easing amid persistent inflationary pressures. In May 2025, the bank reduced its two-week repo rate by 25 basis points to 3.50%, continuing a cumulative easing cycle of 350 basis points since late 2023Czech Republic: Central Bank cuts rates in May, [https://www.focus-economics.com/countries/czech-republic/news/monetary-policy/czech-republic-central-bank-meeting-07-05-2025-central-bank-cuts-rates-in-may/]^[2]. This decision was influenced by inflation remaining within the 1.0–3.0% tolerance band since early 2024, though services inflation and property price growth have constrained further cutsCzech Republic: Central Bank cuts rates in May, [https://www.focus-economics.com/countries/czech-republic/news/monetary-policy/czech-republic-central-bank-meeting-07-05-2025-central-bank-cuts-rates-in-may/]^[2]. According to a report by Bloomberg, Deputy Governor Eva Zamrazilova emphasized that policy must remain “at least slightly restrictive” to guard against lingering risksCzech Koruna Strengthens as Central Bank Signals Hawkish …, [https://www.bloomberg.com/news/articles/2025-09-09/citi-sees-koruna-gains-as-currency-channels-monetary-tightening]^[4].

The koruna's performance reflects this cautious stance. As of late September 2025, the CZK reached its strongest level against the euro since December 2023, with EUR/CZK breaching 24.900 following the CNB's rate cutCzech Koruna Continues to Weaken Against Major Currencies, [https://www.pragueforum.cz/czech-koruna-continues-to-weaken-against-major-currencies-reaching-lowest-levels-in-months/]^[3]. However, recent volatility has emerged, with the koruna weakening against major currencies in late September 2025 due to global trade uncertainties and divergent U.S. Federal Reserve policiesCzech Koruna Strengthens as Central Bank Signals Hawkish …, [https://www.bloomberg.com/news/articles/2025-09-09/citi-sees-koruna-gains-as-currency-channels-monetary-tightening]^[4]. Analysts at ING note that while the CNB's tight policy has supported the koruna, external factors such as U.S. tariffs and energy prices could introduce further turbulenceCzech Koruna Continues to Weaken Against Major Currencies, [https://www.pragueforum.cz/czech-koruna-continues-to-weaken-against-major-currencies-reaching-lowest-levels-in-months/]^[3].

The Hungarian Forint: Stability Through High Rates

In contrast, the MNB has maintained a steadfast commitment to price stability, keeping its key rate at 6.50% since September 2024Monetary Policy Reports - Czech National Bank, [https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/]^[1]. This high-rate environment has been pivotal in curbing inflation expectations and reinforcing the forint's external value. According to a Bloomberg analysis, the forint's strength against the euro and U.S. dollar has been attributed to the MNB's prioritization of inflation control amid geopolitical tensions and commodity price swingsMonetary Policy Reports - Czech National Bank, [https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/]^[1].

Exchange rate data underscores this resilience. By late September 2025, the HUF had appreciated 0.11% against the CZK compared to early September levels, with the forint's average exchange rate against the koruna reaching 0.06183 in 2025Monetary Policy Reports - Czech National Bank, [https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/]^[1]. The forint's performance against the euro has also been robust, with EUR/HUF hovering near 400, a level analysts suggest could rise to 410 by year-end due to medium-term bearish pressuresCzech Republic: Central Bank cuts rates in May, [https://www.focus-economics.com/countries/czech-republic/news/monetary-policy/czech-republic-central-bank-meeting-07-05-2025-central-bank-cuts-rates-in-may/]^[2]. The MNB's focus on financial stability and environmental sustainability—outlined in its April 2025 policy statement—has further solidified market confidenceCzech Republic: Central Bank cuts rates in May, [https://www.focus-economics.com/countries/czech-republic/news/monetary-policy/czech-republic-central-bank-meeting-07-05-2025-central-bank-cuts-rates-in-may/]^[2].

Policy Divergence and Regional Implications

The contrasting strategies of the MNB and CNB highlight broader regional dynamics. While the CNB has cautiously navigated a path of gradual easing, the MNB's high-rate environment has created a steeper yield differential with the European Central Bank (ECB), which initiated rate cuts in September 2025Czech Koruna Strengthens as Central Bank Signals Hawkish …, [https://www.bloomberg.com/news/articles/2025-09-09/citi-sees-koruna-gains-as-currency-channels-monetary-tightening]^[4]. This divergence has amplified the forint's appeal to investors seeking higher returns, while the koruna's strength has been tempered by its proximity to ECB policy shifts.

Citigroup analysts argue that the koruna's recent appreciation reflects a “monetary tightening through currency” strategy, where the CNB allows the koruna to strengthen to offset inflation without raising ratesCzech Republic: Central Bank cuts rates in May, [https://www.focus-economics.com/countries/czech-republic/news/monetary-policy/czech-republic-central-bank-meeting-07-05-2025-central-bank-cuts-rates-in-may/]^[2]. Meanwhile, the forint's trajectory suggests that the MNB may delay easing until 2026, contingent on inflation trends and external stabilityMonetary Policy Reports - Czech National Bank, [https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/]^[1].

Outlook: Navigating Uncertainty

Looking ahead, both currencies face challenges. The CNB's Summer 2025 Monetary Policy Report projects inflation to remain above 2% through 2025, with rates likely stable until mid-2026Monetary Policy Reports - Czech National Bank, [https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/]^[1]. For the MNB, analysts anticipate only modest easing before year-end 2025, with a potential full easing cycle in 2026 if inflation aligns with targetsCzech Koruna Continues to Weaken Against Major Currencies, [https://www.pragueforum.cz/czech-koruna-continues-to-weaken-against-major-currencies-reaching-lowest-levels-in-months/]^[3].

Investors should monitor the CNB's June 2025 meeting for clues on further rate adjustments and the MNB's September 2025 policy review for signals of a pivot. The forint's resilience and the koruna's mixed performance underscore the importance of central bank credibility in volatile markets.

Conclusion

The HUF and CZK exemplify how hawkish central bank policies can drive currency resilience in Eastern Europe. While the CNB's measured approach balances inflation risks with gradual easing, the MNB's high-rate strategy has fortified the forint's position. For investors, these cases highlight the value of aligning portfolios with central banks that prioritize stability and transparency—a critical edge in an era of global macroeconomic fragility.