Zloty Deepens Loss as Morgan Stanley Advises Selling Before Vote

  • Law & Justice party says it would favor dovish rate council
  • Party on track to win Sunday’s general election, polls signal

The zloty fell to a nine-month low against the euro after opposition politicians presented plans that herald a softer approach to monetary policy and Morgan Stanley advised lowering exposure to the currency before a national election Sunday.

Poland’s currency fell 0.5 percent to 4.2809 per euro at 3:50 p.m. in Warsaw, increasing its loss in the last five days to 1.1 percent. It is down 0.8 percent this month, the worst performance among 12 developing Europe peers.

With polls indicating the Law & Justice party is on track to win the vote, the party wants the central bank to funnel 350 billion zloty ($93 billion), or almost a fifth of gross domestic product, in loans to commercial lenders to boost growth, economic spokesman Henryk Kowalczyk said yesterday. It will favor candidates supporting monetary easing when it gets to pick candidates for the central bank’s rate-setting panel next year, he was quoted as saying by PAP newswire today.

Law & Justice’s loan plan “is likely to increase market expectations of a more dovish stance to monetary policy should we see the opposition take power in the elections,” Morgan Stanley strategists wrote in a report today. They reiterated their stance to sell the zloty for the forint in the run-up to the vote.

Rate Committee

The composition of Poland’s rate-setting committee will start changing as early as February, when the next parliament will vote in six of its 10 members. President Andrzej Duda, originating from Law & Justice, will appoint a further two panelists and pick Governor Marek Belka’s successor in June. The party leads the ruling Civic Platform 43.7 percent to 27.1 percent, pollster GfK said on its website today.

Polish bonds rose, sending the yield on the country’s 10-year zloty note down two basis points to 2.71 percent. The spread over similar German bonds rose two basis points to 212 basis points, 10 basis points above a seven-month low reached this month.

“I don’t think this is a massive stampede for exit or anything like that,” Peter Attard Montalto, a strategist at Nomura International Plc in London, said by e-mail. Law & Justice’s proposals are not “stand alone, but part of a much larger pro-investment campaign” that could reinforce growth and become positive for the zloty, he said.

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