Polish and Hungarian central banks ready to act as currency comes under strain

BUDAPEST/PRAGUE, March 1 (Reuters) – Poland’s central bank on Tuesday sold some foreign currency for zlotys and Hungary’s central bank said it was “ready to act” to support markets after the forint hit new lows, as Central European currencies came under heavy pressure.

Gains made in regional currencies at the start of the year have faded since Russia invaded Ukraine last week, and market volatility has increased, leading investors to seek safety, especially after Western countries tightened sanctions against Moscow, hitting its financial markets.

“The events of the weekend really put a knife to the throats of central European currencies,” said an FX trader in Budapest.

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The forint hit a fresh record low for a second session as it fell as low as 379.70 for the euro earlier in the day, well above a previous low of 372.

It recovered some losses after the central bank told Reuters it was ready to intervene “at any time” with all the tools at its disposal to ensure stability in local financial markets.

As of 5:07 p.m. GMT, the forint was down 1.7% at 377.22 per euro. Budapest (.BUX) shares fell 11%.

In Poland, the zloty fell to 4.808 per euro, the weakest since 2009, but stabilized at 4.748, down 1.3% at the end of the afternoon.

Poland’s central bank gave no further details in its afternoon statement on currency sales, after the bank said in an earlier comment that it had an adequate level of reserves.

He said the zloty’s depreciation was not in line with fundamentals.

REVERSE COURSE

Currencies in the region had appreciated earlier this year as central banks raised interest rates to combat soaring inflation, but they are now under pressure.

Analysts believe that the crisis in Ukraine could have limited economic impacts on Central Europe due to low export levels to Russia. But rising energy prices in the markets will add to inflationary pressures and hit consumers and businesses, raising concerns about how central banks will fare.

The Czech central bank said last Thursday after the start of the Russian invasion of Ukraine that it had sufficient tools if it became necessary to stabilize the markets and that it was ready to react to curb excessive fluctuations.

The krone hit a three-month low on Tuesday before rebounding to trade 1.2% lower at 25.415 per euro.

Jaromir Gec, a strategist at Komercni Banka, said the corona movements had not yet reached a point requiring action, but he expected the bank to be ready if needed.

“We’re just in a period of greater volatility. It’s really a turbulent time,” he said.

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Editing by Emelia Sithole-Matarise and Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

Laura T. Thrasher