The Polish zloty remained locked in a tight range on Monday

The Polish zloty remained locked in a tight range on Monday as 3.88 EUR/PLN level provided ample resistance and as other CE4 markets started the week off on the back foot. With no fresh news on the coalition deal during the day the batch of macro data (more in fixed income part) got the market’s full attention, but was unable to push bonds, and hence the zloty in a discernable direction.

Late in the evening the long awaited news on the coalition agreement hit the headlines – Jaroslaw Kaczynski decided to reappoint Self-Defense’s Andrzej Lepper to the deputy PM and agriculture minister post and hence revive the conservativepopulist government deal after a month-long break. Interestingly the PiS-SO-LPR coalition will not have the majority of seats in the Sejm, after several breakaways left the Self-Defense recently, taking the vote count down to 230 (of 460 seats). In this case the PiS will have to resort to the parliamentary plankton for support (further coalition negotiations will be held to discuss this matter). Nevertheless the two dissolution votes planned for today should be an acid test for the coalition in the current set up - one which it should easily pass given the fact that a 2/3 majority is needed to shorten the parliament term.

Unlike its regional peers, the PLN has yet to hit a soft patch after last week’s solid gains saw the unit edge to two month highs against the euro. Profit taking seems unlikely today though, unless other CE4 markets lead the way, with the conservativepopulist coalition back in place and the dissolution votes a mere formality. Markets have had the chance to price in the PiS-SOLPR deal already, but with the remaining political uncertainty wiped away the zloty should react positively at first to the perspective of short-term political stability. Nonetheless as we have stressed before apart from being the most likely scenario for some time now, the revival of the government deal is not as market friendly in the medium and long term perspective, given the frailty of the coalition and its “social” orientation, so any gains are likely to be limited to the current 3.88- 3.92 EUR/PLN range.

(CSOB - Investment research)