Eastern European currencies are at an all-time low

The Polish and Hungarian currencies fell sharply as Russia entered the second week of its invasion of Ukraine.

The zloty fell 1 percent against the euro, trading at 4.9476 and fell below the 2004 low.

The forint also lost more than 2% against the euro, hitting an all-time low of 396.98.

Increasing geopolitical risks and concerns about the effects of the war on the economy are causing a sharp decline in the financial markets in the region. The sharp depreciation of currencies is also a problem for central banks, which are already struggling with high inflation.

InTouch Capital Markets Currency Analyst Piotr Matys stated this week that the Polish Central Bank is expected to raise the policy rate by 50 basis points to 3.25 percent, but this will not provide sufficient support to the zloty in the short term. Matys said, "The Hungarian Central Bank may also need to raise the one-week benchmark interest rate further due to the selling pressure on the forint."

The Polish National Bank will announce its interest rate decision tomorrow. On the other hand, Hungary is expected to continue to increase interest rates at the meeting on March 10, following the 75 basis point increase in interest rates last week, which was above expectations.