The Polish zloty inched down against the
euro from 3.97 EUR/PLN to the 3.99 area on
Thursday in reaction to a series of critical
remarks on next year’s budget made by NBP
chief Leszek Balcerowicz, but in the end the
pair managed to withstand the pressure to
break past 3.99 and by the end of the day it
retreated into the safe 3.87-3.88 territory.
The NBP president dubbed the 2007 budget
act irresponsible and stomped down on
excess spending and the lack of
consolidation measures necessary to cut
down on borrowing needs. Later in the day
Balcerowicz added, using the same
cautionary rhetoric, that the limited market
reaction to what’s been going on in politics
may not last long and that the zloty might be
heading for a turbulent correction.
Although
we basically agree that politics remain the
single most relevant risk factor for the zloty
it’s also more of an indirect one from our
perspective. The breakup of the coalition or
new coalition building efforts are unlikely to
have a lasting impact on the market unless
they lead to the erosion of next year’s
budget (not completely out of the question,
but all in all unlikely) or hamper the robust
economic performance (highly unlikely in the
short-to-medium term perspective).
Hence we expect the zloty will stick in the
current technical range (3.95-3.99 zlotys per
euro), although since the pressure from
political is anything but gone the EUR/PLN
pair is unlikely to deviate much from its
upper limit.
ČSOB Investment research