Date: 16 Aug 2018

Last month, Poland’s central bank left interest rates unchanged on July 11 at 1.5 per cent with Governor Adam Glapinski, Governor of the National Bank of Poland (NBP), saying that his personal view was that “until the end of 2020 there will be no change” in Polish interest rates. Of course Glapinski was speaking before the slide in the value of the Turkish lira (USDTRY, EURTRY) started to give investors the jitters not only about the TRY but other emerging market currencies too. For example, on July 11, USDPLN was trading at 3.72 and EURPLN at 4.33 and while the PLN has subsequently held its own versus the euro, by yesterday USDPLN was at 3.81. Clearly USD strength is a key contributor of that rise in USDPLN but there may also be a degree of PLN weakness, whether because the Polish zloty has suffered a degree of spillover from the slide in the Turkish lira, or perhaps because the currency market now has doubts about the sustainability of Glapinski’s time frame for a rate hike in Poland, or perhaps because traders are conscious that Warsaw’s differences with the European Commission (EC), over judicial changes in Poland, are still unresolved. As the Netherlands’ Rabobank wrote yesterday “Poland has one month to comply with the recommendations issued by the EC” and it feels that “that the market seems to be too complacent about the potential negative implications” of the dispute which could include that “Poland’s voting rights in the EU could be temporary suspended and more importantly EU funds put on hold.” It remains to be seen whether the currency market will be of the same mind but Rabobank thinks “USDPLN has the potential to extend gains to around 3.90 in the short-term and EURPLN may gain sufficient traction to revisit the June high at 4.4142.”

by Neal Kimberley, External Currency Analyst.