Top Forecasters Sanguine as Zloty Sails Into Political Headwinds

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Chart: Zloty Rate

Poland’s zloty will tread a minefield in the next six months and emerge unscathed, according to the currency’s top forecasters.

Jaroslaw Janecki, the chief economist at Societe Generale SA in Poland, expects the zloty to end 2015 at 4.15 per euro, a 1.2 percent appreciation from current levels. Before it gets there, the exchange rate will come up against turmoil in Greece, the first Federal Reserve interest-rate increase since 2006 and a Polish election that may bring to an end the current government’s eight-year rule.

These three are the “main factors that will determine the zloty’s performance” through year-end, Janecki, whose projections for the currency were the most accurate in the four quarters through June 30, said by phone on Friday. The central bank and Finance Ministry stand ready to mitigate any large turbulence, he said.

The outlook for the next six months would mark an about-face for a currency that suffered its biggest quarterly loss since 2013 in the three months to June 30 as Greece moved closer to leaving the euro area, Poland’s biggest trading partner. The nation’s current-account surplus and projections for the fastest economic growth in four years counter the headwinds and underpin the currency, according to X-Trade Brokers Dom Maklerski SA, the second-best forecaster ranked by Bloomberg.

Greek Referendum

The zloty fell 0.2 percent to 4.2018 against the euro at 2:22 p.m. in Warsaw. It touched 4.2177, the weakest level since February, in offshore trading late on Sunday after tallies showed Greece voted against yielding to further austerity demanded by creditors.

Sixty-one percent of voters backed Prime Minister Alexis Tsipras’s rejection of further spending cuts and tax increases in an unprecedented referendum that’s also taken the country to the brink of financial collapse. Finance Minister Yanis Varoufakis resigned after the Sunday vote, giving the country a chance to lower the temperature on its often confrontational interactions with other European countries.

“Whatever happens in Greece will only have a temporary impact on the zloty as Poland’s exposure to Greece is very small,” Przemyslaw Kwiecien, the chief economist at Warsaw-based X-Trade, said by phone on July 3.

Both Kwiecien and SocGen’s Janecki see the zloty strengthening in the third quarter. While Janecki said he assumes Greece will stay in the euro, the “biggest risk” to his forecast for Poland’s currency reaching 4.1 against the euro by the end of September is worsening conditions in the country.

More Headwinds

The start of U.S. rate increases and Polish elections in the fall will put pressure on the currency, sending it 1.2 percent lower in final three months of the year. The surprise victory of opposition leader Andrzej Duda in the presidential ballot in May signaled growing support for the Law & Justice party. The group has backed policies such as rolling back an increase in the retirement age, which would put strain the nation’s budget deficit.

The best-case outcome for the vote would be a majority coalition, although achieving this may be complicated, according to Janecki.

Poland’s improving economy will help keep the zloty on track for its first annual gain in three years, according to X-Trade’s Kwiecien. He predicts the zloty will end the year at 4.12 per euro, capping a 4.1 percent advance in 2015.

Economic growth will probably accelerate to 3.8 percent this year, from 3.4 percent in 2014, central bank management board member Andrzej Raczko said on June 23. The current-account surplus exceeded 1 billion euros ($1.1 billion) in both March and April, the highest levels in at least five years, according to the latest official data.

“The economy is doing well and the current account looks excellent,” Kwiecien said.

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