It was all a political story for the Polish zloty on Thursday

It was all a political story for the Polish zloty on Thursday. The market got off to a strong start of the session underpinned by signals that the ruling conservatives might strike the long awaited coalition deal with two or three fringe parties later in the day. the PLN fell back slightly later in the session after the PSL (Polish Peasants Party) ultimately decided not to enter the government. Despite the evident setback PiS officials reiterated immediately that the conservatives might strike the deal with populist Self-Defense and several right-wing deputies anyway (and did so later in the evening). This helped the zloty regain its footing in the 3.87-3.88 EUR/PLN area.

However, it’s a fact that the PSL’s decision puts the PiS in a difficult position. Together with 55 Self-Defence deputies, several votes from LPR breakaway MP’s and the parliamentary plankton the Kaczynski brothers can count on just over 220 votes in the 460 member Sejm - this is still several votes short of the needed 50% majority. At the moment it’s difficult to predict the final outcome of the ongoing power struggle. Basically we see two options: one is that the PSL will return to talks with the PiS, possibly with some new demands, while the other is earlier elections (most likely after the summer holidays). It seems that an opinion expressed in the evening by the PiS leader Kaczynski, that the PiS would expect growing-up of those parliament members, who had decided not to seal coalition agreements, indicates that the first option is more likely.

The market’s reaction to yesterday’s setback in coalition talks only confirms that the economy is giving significantly less thought to political issues than before. The zloty’s resilience to the negative news yesterday along with Poland’s strong economic foundations suggest that the EUR/PLN will probably find it difficult to break back past the 3.90 EUR/PLN level in the medium run. As for today’s trading all will once again be up to domestic politics and core markets - although with the long weekend up ahead we would not expect any significant repositioning today.

(CSOB - Investment research)