After November, which was disastrous for our currency, analysts’ forecasts for the zloty deteriorated further. It seems that the weakness of the Polish currency is slowly becoming “the new normal”.
At the end of November, the euro exchange rate for the first time since March 2009 exceeded the PLN 4.70 line. The double peak at the level of over PLN 4.72 has stopped the zloty depreciation so far, but the situation remains uninteresting. The market expects a sharp increase in interest rates (by 50-75 bp) at the Wednesday meeting of the Monetary Policy Council. In the next six months, WIBOR is to increase to close to 3.2%.
In the short term, the zloty was positively influenced by the change in the rhetoric of the NBP president Adam Glapiński. – We will do everything to keep inflation as short as possible and to keep it as gentle as possible. (…) I change my rhetoric. Inflation is temporary, but over a 2-year period, and this is not known either, although this is how we see it now. Inflation is not temporary, inflation is burdensome. We will try to bring it down to the minimum levels, but not at the expense of high unemployment – said President of the National Bank of Poland Adam Glapiński on Wednesday. This is a 180-degree change in approach, because in the previous months, quarters and years, the NBP governor played down the issue of inflation and did not mind that it was running above (and recently much above) the inflation target.
Unacceptably high inflation (in November it was as high as 7.7%), still very low interest rates at the National Bank of Poland (the reference rate is only 1.25%), the dispute between the Polish government and the European Commission and generally negative sentiment towards emerging markets remain a burden on the outlook for the zloty for the coming months and quarters. In addition, we are hurt by the high prices of imported energy resources (mainly crude oil and natural gas), which contributes to a negative current account balance.
The outlook for the zloty is getting worse
In such an environment, analysts continue to lower their forecasts for our currency. At the end of November, the market consensus assumed that at the end of 2022 the euro exchange rate would be PLN 4.55. This is 8 groszy more than in the list from the beginning of November. Forecasts for the next month also went up. At the beginning of November, the end-year euro exchange rate was estimated at PLN 4.59. After a month, this value increased by PLN 0.02, to PLN 4.61. In total, in September, October and November, the forecast of the euro exchange rate at the end of 2021 increased by as much as PLN 0.16.
|Median of the forecasts at the end of the period|
|IV quarter 21||Q1 2022||Q2 22||Q3 22||2022|
|EUR||PLN 4.61||PLN 4.61||4.58 PLN||PLN 4.55||PLN 4.55|
|USD||PLN 4.01||PLN 4.04||PLN 3.96||PLN 3.91||PLN 3.85|
|GBP *||PLN 5.41||PLN 5.49||PLN 5.43||PLN 5.40||PLN 5.35|
|CHF *||PLN 4.31||PLN 4.27||PLN 4.24||PLN 4.17||PLN 4.14|
|Source: Bloomberg. As of November 30, 2021 * own calculations|
However, the really worrying fact is that long-term expectations for the euro exchange rate are rising sharply. Currently, most forecasts in the Bloomberg database assume that we will end 2022 with the euro not cheaper than PLN 4.55. This is 8 cents more than at the beginning of November. Two months ago, the median of forecasts was PLN 4.45, in September it was PLN 4.39 and in August it was PLN 4.33. Therefore, we are dealing with a clear shift of market expectations upwards.
Almost no one expects the zloty to return to its pre-vid form, understood as a fall in the euro exchange rate to the range of PLN 4.25-4.35, even in the long term. The current forecasts assume that in the years 2022-23 the euro at PLN 4.40-4.60 will become the “new norm” on the Polish currency market, which would mean consolidation of the depreciation of the Polish currency that occurred in the spring of 2020.
In the horizon of 2022, the greatest optimists towards the zloty are Ebury analysts and ABN Amro experts, who expect the euro to drop to PLN 4.30. Most of the forecasts are in the range of PLN 4.40-4.60. The title of the biggest pessimists went to the team from Wells Fargo, who forecast an increase in the euro exchange rate to PLN 4.90 at the end of 2022. The analysts of JP Morgan Chase expect the euro at PLN 4.80, and the Commerzbank experts see the Community currency at PLN 4.75.
Problems with the stubborn dollar
This year, the forward-looking market has extremely serious problems with accurately forecasting changes in the world’s most important currency pair. At the beginning of the year, the EUR / USD rate was expected to increase to 1.24. Meanwhile, the euro fell to around $ 1.13. Despite this, most market analysts still expect that in the coming quarters the dollar will depreciate against the euro, and the EUR / USD exchange rate will rise to 1.15 at the end of this year and will reach 1.17 at the end of 2022. that over the past 12 months the forecasts for a weakening dollar simply did not come true.
This has an impact on expectations for the dollar-zloty pair. The market consensus assumes that the price of the American currency will stabilize around PLN 4 and that it will slowly start to decline in the spring. These forecasts are burdened with above-average risk due to expectations regarding the Federal Reserve’s next year’s policy. Fed chairman Jerome Powell recently suggested that in December the pace of “collapsing” the bond purchase program may be accelerated. In the first half of 2022, the market expects the first federal funds rate hike. Meanwhile, the European Central Bank is still hiding its head in the sand and is not thinking of abandoning its extremely expansionary monetary policy even in the face of nearly 5% HICP inflation in the euro area. This situation favors the dollar against the euro and strengthens the dollar against the currencies from emerging markets (including the zloty).
That underestimated franc
Similar – and maybe even bigger – problems with the dollar concern the Swiss franc. The strength of the Helvetic currency is regularly underestimated this year. Most of the analysts still believe that the EUR / CHF should move towards 1.10 franc per euro. Meanwhile, since March the franc has been appreciating against the euro, which is illustrated by the decline in the EUR / CHF rate from over 1.11 to around 1.04. The Swiss franc in relation to the euro is currently the strongest since July 2015 and so far there are no significant chances to reverse this trend.
The strength of the franc combined with the weakness of the zloty at the end of November resulted in a new record for the franc-zloty pair. The Swiss currency cost over PLN 4.52, which was not predicted by any of the market forecasts. In this context, the current market consensus assuming the level of PLN 4.31 per franc at the end of December seems to be a bet out of touch with reality. The realization of the forecast in the form of PLN 4.14 per franc at the end of 2022 is also a big question mark.
As always, let us remind you that we are talking about the median of analysts’ forecasts all the time. The predictions of even the best experts may miss reality, which has happened quite often in the past. It should also be remembered that exchange rates can be very dynamic and during a quarter they may significantly deviate from the levels forecasted at its end.