The zloty is losing as the dollar appreciates, but the weakening of the Polish currency is stronger than that of other currencies in the region. In my opinion, it is a matter of, among others delays in approval of the KPO by Brussels, Grzegorz Maliszewski, chief economist of Bank Millennium told PAP.
In recent days, the zloty has been depreciating both against the euro and the dollar.
“A tool that would support the zloty is, of course, an interest rate hike. Except that a raise would cool down the economy. In addition, it is worth noting that although the market is pricing in the scenario of interest rate increases to 3-3.25 percent, the zloty is still losing, ”Grzegorz Maliszewski, chief economist of Bank Millennium, told PAP.
In his opinion, this means that the zloty is also affected by factors other than the dollar strengthening affecting the currencies of emerging markets.
“The zloty is losing following the strengthening of the dollar, but the weakening of the Polish currency is stronger than that of other currencies in the region. In my opinion, this is a matter of delay in the approval of the National Reconstruction Plan by Brussels and the receding prospect of an inflow of EU funds. Reaching an agreement on the KPO and easing conflicts with the EU would be good news for the zloty and would certainly lead to its strengthening, ”said Grzegorz Maliszewski.
In his opinion, an additional factor that could help our currency would be a change in the so far unclear position of the NBP.
“For a long time, the central bank reported that the weak zloty supports the economy. And this argument was repeated even when the zloty depreciated and its value reached long-term lows. This made investors lose faith that the NBP will want to defend the zloty and that it will rather agree to a decline in its value in order to support the economy. This lack of faith in the will to defend the zloty also affects our currency, ”stated the chief economist of Bank Millennium.
This means that the intervention of the central bank could be another tool to strengthen the zloty.
“The central bank’s instruments include both verbal interventions and physical interventions. The problem is that both could only have a short-term effect. There could also be a temptation from the market to test the central bank’s determination to defend the zloty. To strengthen the zloty, we would need to improve communication and transparency of the central bank, to rebuild investors’ faith that the NBP will be ready to defend the zloty, ”said Maliszewski.
The expert pointed out that the government may also intervene verbally. An example may be the statement of Prime Minister Mateusz Morawiecki on Monday that the government will be in communication and will do everything to strengthen the zloty a bit. However – as Grzegorz Maliszewski reminded – the effect of the Prime Minister’s statement was temporary. Because although the Prime Minister’s words led to a drop in the euro exchange rate by approx. PLN 0.04, on Monday evening the euro rate increased again to over PLN 4.7.
“The government could also choose to intervene physically. He has at his disposal European funds, the sale of which through the market could strengthen the zloty. But again, the effect does not have to be permanent. I think that if there is no fundamental change in the KPO issue and no easing of tensions between Poland and the EU, the effects will be short-term. It is only when the government’s actions on the currency market are included in the broader picture of the stabilization of market sentiment that can give a clear effect, ”said the chief economist of Bank Millennium.
author: Marek Siudaj