Forecast for the zloty: decreasing rate and capital outflow

24.04.2018 15:12|Bartosz Grejner

“You have to prepare for the zloty to gradually lose to the euro, dollar, pound or even the globally weak Swiss franc. The lack of possibilities for interest rate hikes in Poland, with simultaneous growth, e.g. in the US, will not help the Polish currency,” writes Bartosz Grejner, Conotoxia Analyst.

Bartosz Grejner, analityk Cinkciarz.pl

Today, we can still talk about a relatively strong Polish currency. The dollar is cheaper by about 0.80 PLN and the euro by 0.30 PLN compared to the rates from mid-December 2016. However, until recently the zloty has gained due to the very good condition of the eurozone economy, as well as a slight uncertainty about monetary policy in the US. Now the situation has reversed.

Interest rates will not change in Poland

Both "hard" and "soft" data (questionnaires - business, consumers, etc.) indicate a slowdown in the rapid pace of the euro economy development. This fact does not encourage the European Central Bank (ECB) to tighten its ultra-soft monetary policy or at least communicate such a process.

On the other hand, on the domestic market, the Monetary Policy Council (RPP) will most likely be waiting for what the ECB will do and when. The RPP's soft approach to interest rates means that they should not be expected to increase before the first quarter of next year. They may remain unchanged even until the end of 2019. This approach goes hand in hand with the inflation processes weakening which have been visible in recent months.

America does not support the zloty

The zloty is definitely not favored and will not be favored by the gradually strengthening dollar. This is the aftermath of a relatively mild monetary policy in Europe, with simultaneous monetary tightening in the US, where interest rates have already been raised once this year. And there are at least two more rises ahead of us.

As a result, the growing yields of U.S. Treasury bonds are becoming a mere morsel for investors. In such a situation, assets of developing countries, perceived as more risky, are becoming relatively less and less attractive to invest capital in. Thus, it begins to flow, amongst others, from the zloty to the more secure dollar or from the bonds mentioned above.

Year of the weakening Polish zloty

Although fluctuations in the US dollar and the zloty value may occur along the way, due to the risk of limiting free trade (customs duty), this capital movement process is likely to continue gradually over the next 12 months.

Rapid acceleration of the current inflation processes in the eurozone and Poland could encourage both the ECB and the MPC to tighten monetary policy, or at least to announce such a move. However, currently, this is an unlikely scenario. Therefore, we should prepare for the gradual weakening of the zloty in relation to the basic currencies - euro, dollar, pound and even the globally weak Swiss franc.


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