Earlier this month, almost all Central and Eastern European states were hit by the effects of the war in Ukraine, and by EU sanctions imposed on the Russian Federation.
Most affected, however, are Poland and Hungary, two countries with strong trade or political ties with one or both of the warring states.
Poland exports about 16 billion euros worth of goods to the Russian Federation every year, and if EU sanctions are extended then Poland’s foreign trade will run into a substantial deficit.
On the other hand, Hungary, Putin’s trusted friend, will suffer even more because large investments, such as the Pecs nuclear power plant, are now being questioned.
Against the background of these economic difficulties, the national currencies of the two states, located outside the euro area, suffered a real crash.
On Monday, the EUR / PLN exchange rate reached the level of PLN 5 for the first time in history. When this limit was broken in the morning, the rate stabilized quickly at around 4.95. It was probably due to the intervention of the NBP. Unfortunately, after a few hours, the zloty shot up again.
The Swiss franc was also very close to this level, while the dollar price jumped to PLN 4.62.
Such exchange rates mean that since mid-February the euro has already jumped by about PLN 0.5, the franc by over PLN 0.7, and the dollar by about PLN 0.65. All despite the subsequent currency interventions of the National Bank of Poland.
The forint hit another historic low against major currencies in the interbank market on Monday morning. The Hungarian currency reached a record 399.98 to the euro. The forint also dropped to new lows against the dollar and the Swiss franc at 367.90 and 399.03 forints, respectively.
The forint has plunged almost 10% against the euro to a record low since the start of the war in Ukraine. It’s among the biggest drops in the world.
At this point, the sharp weakening of the forint is not surprising, as the past week it dropped to newer and newer record lows against the euro almost every day.
Even the National Bank’s (NBH) Thursday intervention of raising its one-week deposit rate – its biggest rate hike since 2008 – proved ineffective.
The rapid weakening of the forint is also adding to the inflation pressure, already at a staggering level in the country. The annual price growth accelerated to an almost 15-year high of 7.9% in January and could easily be as high as 8.5% in February.
The Warsaw Monetary Policy Council (MPC) took a decision yesterday, March 7, to raise interest rates significantly. According to the MPC communiqué, the reference rate increased by 0.75 pp. To the level of 3.50 percent.
Polish interest rates will rise again. According to the decision of the Monetary Policy Council on Tuesday afternoon, the main rate increased by up to 0.75 pp. This means that the ratio is 3.50 percent. Before the increase, it was 2.75 percent.
The main argument for a significant increase in the reference rate (apart from the standard rate increase, of course, ie the fight against inflation) is the attempt to clearly limit the pressure on the weakening of the zloty, which Poland has been facing since the outbreak of war. in Ukraine.