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The zloty jumps buoyed by election outcome (Daily analysis 16.10.2023)

16 Oct 2023 8:40|Bartosz Sawicki

The ruling Law and Justice party won 36.6% of the vote in Poland's parliamentary elections on Sunday but is likely to fall short of the number of seats needed to form a government, a late poll showed. The opposition is projected to win 248 seats in the 460-member lower house of parliament. The polls indicating a much more favourable outcome for Law and Justice were defied due to a record-high turnout, which accounted for almost 73%. Official results are expected to be published on Tuesday.

 Kursy walut po wyborach, kurs euro zawraca pod 4,50 zł, kurs dolara nadal w trendzie wzrostowym; źródło: Cinkciarz.pl

The Polish zloty rallies and trades 1.5% higher against the main currencies. The EUR/PLN rate declines to 4.47 and completely erases the move higher triggered by a shock, mammoth rate cut from September. Forming a pro-European government that would prioritize the rapid unlocking of funding for the National Recovery Plan worth 35 billion EUR would reduce the political risk premium. The weak growth of Poland's main trading partners and the gradual recovery of consumption point to an inevitable shrinking of the current account surplus. An increased flow of EU funds would help the economy regain traction and cement a favourable balance of payments dynamics. A rapprochement with Brussels would be undeniable, but a potential presidential veto could hamper a breakthrough in reforming the judiciary system.

The outcome is the best-case scenario for the zloty, yet medium-term challenges remain. Deeply negative real interest rates will not disappear overnight, and inflation could be sticky next year. Although a gradual drift towards slightly more restrictive fiscal policy can be expected, high borrowing needs will also stay in place. Conotoxia forecasts that the EURPLN rate will hover around 4.50 PLN at the end of the year. The initial market reaction, which was clearly positive, could fade if the political uncertainty persists. The handover of power could take up to two months, as the United Right is believed to be trying to form a government, although these efforts appear to be doomed.

16 Oct 2023 8:40|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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Attractive exchange rates of 27 currencies