Mounting political risk pushed the zloty
down to two week lows in morning trade on
Wednesday, after president Kaczynski
indicated clearly that he would opt for the
shorter of the two budget deadlines, giving
the parliament just two weeks to work on the
act. It increased the chances of early
elections. Meanwhile PM Kazimierz
Marcinkiewicz assured opposition parties
that the budget could be completed in time,
although this would require their full
cooperation in parliament.
Later in the day, the zloty found support from
the relatively well bid 5Y bond auction, which
took the market’s mind off politics for a short
while and helped bonds recover gently. The
EUR/PLN retreated to the 3.85 area and
market shifted into wait and see mode.
Lech Kaczynski’s brother and PiS leader
Jaroslaw proposed to end the budget
stalemate with an agreement, according to
which the president would not call for earlier
election in return for which the smaller
parties would unconditionally pledge to
support the budget and a pack of other key
“stabilizing” bills in parliament. Meanwhile
the president himself issued a statement
confirming that he would call a snap poll if
the conservatives failed to find partners for a
stable majority in parliament for at least a
year.
The negotiations between PiS and Self-
Defense failed as the last one required seats
in the government what was not accepted by
the governing party. However it seems that
smaller parties (like LPR and PSL), that are
currently in the corer with high risk of not
being re-elected, have a strong incentive to
collaborate with PiS. One of LPR leaders
called the PiS offer “rational”. Temporary
subordination of LPR (32 seats), PSL (25
seats) and independent parliament members
(5 seats) would give PiS 217 votes of 230
needed to have a majority in Sejm. From
our perspective other 13 votes could be
easily “acquired” among Self-Defense or
Civil Platform members.
The problem is that such a “coalition” would
be only short-term lasting. It is the truth that
this would protect the budget bill from putting
into it over-expensive amendments that
would cause explosion of the budget at
some point in time, what opposition parties
probably intended proposing them. However
there could be a problem with support of
these opposition parties to other “stabilizing
bills” since more time is needed to pass
them through the parliament and it is hard to
believe that they would stay in the corner for
so long.
We expect the zloty behavior to be
mainly driven by politics in the coming days.
If likelihood of a call for earlier elections
increases, it may send the zloty to even
weaker levels. If it occurs that opposition is
willing to “collaborate” with PiS, the currency
may return to strong levels below 3.80
EUR/PLN. The IP data that will be published
today at 16.00 may bring some deterioration
in the appetite for PLN, as our forecast at
4.0% is about a half of the market
consensus.
(CSOB - Investment research)