Afternoon analysis 22.07.2015

NBP President Marek Belka presented an annual testimony on the monetary policy. Alexis Tsipras seeks support for the second set of reforms, that will unlock bailout. The zloty gained against the euro and the franc.

Today passes the final deadline for the implementation of the second set of bills, that is a precondition for bailout. Last week there was a rebellion in the Syriza party as some policymakers voted against the reform plan. As a result, the Prime Minister Alexis Tsipras had to reshuffle his government. Nevertheless, the coalition with the Independent Greek party has been maintained.

Today's vote is not as controversial as last week's. It is regarding the banking restructuring law and the civil code overhaul. And it is not touching the pension reform and tax hikes.

If the Prime Minister recoups some support that was lost last week, it will strengthen his position. However, if his position is weakened, the risk of a snap election will increase, which will negatively affect markets.

In the meantime, the EU Economics Commissioner Pierre Moscovici said that the negotiation with Greece has started. The talks will end in the second half of August. The French politician said that he is not expecting any surprises in the Greek parliament.

Currently, the Greek government can not afford any delays. Greece is due to make a payment to the European Central Bank on 20 August. As the deadline will be getting closer, and if the government gets weaker, the Greek crisis may again become an important risk source.

The European Central Bank increased the level of emergency liquidity for Greek banks. It was raised by 981 million euro. The amount corresponds to the value of deposit withdrawals. Last time the ECB raised the limit just after Greece signed the agreement with the country's international creditors.

The NBP chief speech

Marek Belka, the National Bank of Poland President, presented today the annual testimony on the monetary policy in 2014. During his speech he criticized the idea of the franc credit conversion. He said, that a similar solution in Hungary was needed, but it is not the case in Poland. Belka warned, that the conversion may result in a higher installment in the zloty than would have been in the franc.

The NBP chief assessed the rate policy as "very successful". Given the difficult economic environment, the Monetary Policy Council has managed to balance the rate level and avoid a strong zloty (due to high rates) and deposit outflow (due to low rates). After the crisis hit, the Polish economy managed to avoid a recession, which allowed the MPC to not use unorthodox policy tools.

On Wednesday the zloty gained against the euro and the franc. However, the Polish currency dropped against the dollar and the pound. On Tuesday we have seen some correction in the markets, hence one can expect the zloty to extend gains against the euro and to stabilize against the dollar with a tendency to decline.