Poland Embraces Weaker Zloty as Szalamacha 'Forgets' Downgrade

  • Minister says Swiss franc-mortgage fix can't endanger banks
  • Government plans dollar debt sale in 2016, mulls panda bonds

Polish Finance Minister Pawel Szalamacha welcomed a weakening of the country’s currency and said successful recent bond sales have made him “forget” about last month’s sovereign-debt downgrade by Standard & Poor’s.

The European Union’s biggest eastern economy, where foreign sales helped drive growth to 3.9 percent last year, has benefited from the zloty’s 2.9 percent slide in the past three months, according to Szalamacha, who’s visiting London amid a possible sale this year of dollar bonds. The government’s forecast for gross domestic product to rise 3.8 percent in 2016 may prove conservative as social spending boosts consumption, he said.

“We’re happy about the depreciation of the currency as it creates stimulus for exports,” Szalamacha told Bloomberg TV Friday in an interview. “We’re not very worried about what’s going on with the euro-zloty pair.”

Policy makers from Prague to Tokyo have embraced weaker currencies to help revive flagging economies. The zloty is this year’s third-worst performer among 12 developing European nations. S&P’s cut Poland’s credit rating to the third-lowest investment grade on Jan. 15 on concern about next year’s budget deficit given the government’s social-spending agenda. It also warned over the independence of key institutions following moves by the ruling party to consolidate its power after winning last October’s general election.

The zloty advanced 0.3 percent to 4.3799 against the euro at 3:51 p.m. in Warsaw, gaining for the fifth day in the last six, data compiled by Bloomberg showed.

Asked about the downgrade, Szalamacha said: “I’ve forgotten this actually, because it hardly had any effect on our performance on the financial markets.” On the day S&P cut Poland to BBB+, “we took the hit, but then we recovered and recent” bond sales “were quite successful, highly oversubscribed.”

The Finance Ministry sold 20 percent more bonds than targeted at an auction Thursday, bringing it more than three-quarters of the way to its quarterly target of 38 billion zloty ($9.6 billion). The government managed to lower its borrowing costs on five-year notes to 2.22 percent, less than it paid to sell similar-maturity debt a week before the S&P cut.

“We have some plans for dollar-denominated bonds this year,” Szalamacha said Friday. The ministry is also “seriously” investigating the possibility of issuing so-called panda bonds and will send a mission to China.

The zloty weakness hasn’t been wholly beneficial.

Exposure to Swiss franc-denominated mortgages among Poles was a “negative aspect” of the currency’s decline, Szalamacha said. President Andrzej Duda has proposed converting an estimated $42 billion in home loans at a predetermined rate, an idea central bank Governor Marek Belka says could cost 44 billion zloty and trigger losses at more than two-thirds of lenders.

If financial-watchdog estimates being drawn up now are similar to Belka’s, “the presidential bill will have to be thoroughly rewritten so that it’s lighter for banks and none of them go belly up,” Szalamacha said.

Investors have come around since the S&P downgrade, according to Szalamacha, who reaffirmed his commitment to keep the budget gap within 3 percent of GDP through initiatives including a crackdown on tax fraud. Election pledges such as a boost to the tax-free allowance for personal income tax can be managed over time to maintain fiscal prudence, he said.

“I think we have managed the crisis situation with the middle of January rating,” Szalamacha said. “We are pretty confident we will be welcome on the markets.”

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