• Polish currency joins EM rally, hits six-week high to euro
  • Investors comfortable with plan by president’s advisers: Citi

Poland’s currency advanced to a six-week high as a toned-down mortgage-conversion plan fueled speculation the government won’t approve measures that hobble banks and slow the economy.

The zloty strengthened 0.7 percent to 4.3219 per euro as of 7:11 p.m. in Warsaw, its third day of gains and the second-biggest appreciation among 10 peers in emerging Europe. While the proposals avoided a worst-case scenario, shares in MBank SA, a Polish lender with one of the biggest portfolios of foreign-currency mortgages, fell the most in a week.

The long-awaited recommendations, unveiled by President Andrzej Duda’s advisers on Tuesday, avoided a full body-blow to banks, but kept many details of the conversion unanswered. Demand for Polish assets was also buoyed along with other emerging markets amid wagers the Federal Reserve will delay increasing interest rates.

“Investors’ relief that the new plan doesn’t pin banks down gives fuel for zloty strengthening today,” Marcin Kiepas, chief currency analyst at Admiral Markets AS in Warsaw, said in an e-mailed note. “The Polish currency also benefits from the global emerging-market boost.”

The zloty has rebounded from its slump to a four-year low in January, when S&P Global Ratings unexpectedly cut the country’s credit score, citing concern the new Law & Justice party would undermine the independence of the nation’s institutions. Uncertainty over the plan to convert $36 billion of mortgages to aid borrowers hit by the Swiss franc’s appreciation also weighed on local markets. Under the new proposal, the industry cost would be capped at around 1 billion zloty ($264 million) a year.

At the same time, unknowns remain around the plan and banks will still feel its impact, according to Marta Jezewska-Wasilewska, an equity analyst at the Wood & Co. brokerage in Warsaw. MBank dropped 3.3 percent to 312.30 zloty.

“The proposal still generates a large cost for the banking sector –- even if spread out over the years,” she said in a note.

The plan, announced after the market close on Tuesday, envisages voluntary participation for borrowers and banks spreading costs over 30 years. Mortgages would be changed into zloty using one of four exchange rates and lenders would be able to create a special-purpose vehicle to hold their foreign-currency loans.

“The amended plan isn’t a negative surprise for the market,” Piotr Kalisz, chief economist at Citigroup Inc.’s Bank Handlowy SA in Warsaw, said by phone. “Investors may expect that authorities will take care of the currency.”

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