Renewed fears that the Polish parliament could be dissolved sent the Polish zloty to weaker levels after the opening, but till the end of the session the currency was able to claw back earlier losses due to the falling greenback. The market opened at 3.8642 EUR/PLN and 3.2080 USD/PLN and shortly after that the zloty started loosing the ground, when the PiS leader warned the LPR that snap election could be triggered, if this party didn’t support the PiS’s proposals to launch a probe into the central bank’s supervision over the banking sector.
Day earlier populists from the LPR submitted a separate motion to establish a special commission that beside investigation of the field proposed by conservatives would also examine all cases of privatization in the Polish banking sector. It immediately gave rise to concern that it could lead to a breakdown in the coalition. However, we still uphold our base scenario, which assumes that PiS’ short term objective is to pass the package of key acts (including the act on the Central Anti-Corruption Office and the act on property vetting as well as tax reform and the act on economic freedom) rather than holding a lottery in the form of new elections. Moreover it seems that the cooperation between the pact allies could be even enhanced in short term by their joint effort to put the central bank governor Leszek Balcerowicz in front of the special commission.
The negative market sentiment reversed after the release of inflation and initial jobless claims data in the U.S., which initiated weakening of the greenback and a return of capital to emerging markets. We expect the zloty to record new gains on Friday after the publication of industrial production and PPI data. We have revised our earlier forecast of the IP growth to the level slightly above the market consensus of 9.5% y/y, after the release of extraordinary strong wage growth data on Wednesday. We think that boosting domestic demand, together with the increase in electricity and gas consumption because of the cold winter, should help maintain a relatively high rate of increase in industrial production. Simultaneously our forecast of producer prices at 1.2% y/y is 0.1 pct point higher than the market consensus.
(CSOB - Investment research)