The currencies of the Central European countries that do not belong to the euro area are under severe pressure.

The reason is fear of the economic consequences of the Russian invasion of Ukraine and the resulting economic sanctions.

Despite verbal interventions by central banks, the Hungarian forint fell to a record low of 382 forints against the euro on Wednesday.

At 4.84 zloty per euro, the Polish zloty was at its lowest level since 2009. The Czech koruna remained under pressure, with the euro costing almost 26 koruna.

Romanian lei, on the other hand, remained stable at 4.95 lei per euro.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

  • Follow I follow

"There is war on our borders," said ING economist Peter Virovacz in Budapest.

"The region is facing a flight to safety, which means all Hungarian, Czech and Polish assets are under pressure." While broader stock indices in Prague and Vienna traded lighter in the afternoon, those in Budapest and Warsaw were able to gain.

However, the increase of almost 3 percent in Warsaw can be explained primarily by price gains by energy companies after the Polish government announced that it would refrain from importing Russian coal.

Central banks try to stabilize

Although the region's direct trade links with Russia are not great, there is a fundamental risk that all Central and Eastern European countries could be cut off from gas supplies, which almost exclusively come from Russia.

Hungary is 60 percent dependent on it, Poland 40 percent.

As long as the situation in Ukraine has not calmed down, "genuine foreign exchange market interventions" by the Hungarian, Czech and Polish central banks are appropriate, write analysts at the KBC banking group.

The Czech National Bank has the greatest firepower in terms of foreign exchange reserves.

At the end of 2021, they amounted to $173 billion, more than five times that of the Hungarian central bank.

In much larger Poland, reserves are $161 billion.

The Hungarian National Bank had previously said it was ready to intervene "at any time" to ensure the stability of local financial markets.

The Polish central bank had already sold foreign currency to stabilize the zloty.

Further support measures are necessary, says Bank Millennium in Warsaw.

Inflation forecasts raised

In general, further significant interest rate hikes are now expected.

The central bank announced that it was its clear intention to prevent the increased risks arising from the geopolitical circumstances from threatening Hungary's price and financial stability.

The movements on the financial markets are not justified by the fundamental data, but they increase inflation risks.

The economists at Raiffeisenbank International also expect this.

They have raised their inflation forecasts for central and south-eastern Europe to 10.5 percent in the Czech Republic and 9 percent each in Hungary and Poland.

Rising oil and gas prices fueled inflation.

Households would have less money for other purchases, and production costs also rose, leading to growth that was 0.5 to 1 percentage point lower than forecast.