The Polish zloty inched up by 0.2% against
the euro on Tuesday following the fairly
strong start of the session across emerging
markets. The EUR/PLN pair quickly settled
into yet another extremely tight range in the
3.9050 area, unmoved by politics which
provided the market with a dose of surprise.
This time, the far-right LPR announced that it
would form an informal parliamentary
alliance with the leftist Self-Defence, and by
doing this it stepped up the tone in the
ongoing coalition negotiations with the
conservatives.
Both populist parties see that
the PiS has become less inclined toward
earlier elections (after PM Jaroslaw
Kaczynski came out yesterday morning and
stressed that he saw no need for a snap
poll) and clearly hope that by joining forces
they can work out a stronger bargaining
position. Nonetheless the agreement
changes little in terms of the immediate
political outlook – the PiS would have to
come to terms with both former partners if
the old government coalition were to be
revived, and the LPR-SD deal may even
simplify the negotiations.
Late in the evening
FinMin Zyta Gilowska came out with a
cautionary statement in which she stressed
that the prolonged political turmoil could
undermine the Polish economy and may hurt
investor confidence. The ongoing rows and
constant lack of stability could threaten
reforms and plans of fiscal consolidation,
especially if growth moderates in the years
to come, and could even lead Poland closer
to the Hungarian scenario. This is the
typically strong wording we would expect
from Gilowska, who is seen as the main
reformatory force in the current government,
so a significant (negative) reaction to the
warning from the zloty seems unlikely.
The market has become desperate for
volatility. More importantly, we are skeptical
on whether politics can provide the needed
impulse for the zloty to break out of the tight
and quiet range trade. Of course a failed
vote of confidence and hence pre-term
elections would trigger selling in the
short term, but the losses would most
likely be limited for reasons we have
discussed repeatedly before. We should
see more uninspired sideways movement
from the EUR/PLN pair somewhere in the
area above 3.90 EUR/PLN today.
(CSOB - Investment research)