Zloty Posts Biggest Quarterly Loss Since 2013 on Policy Concerns

  • Polish currency was the second-worst performer among EM peers
  • Government pledges on fiscal prudence may boost zloty: PKO

The zloty ended the quarter with the second-biggest retreat among emerging-market currencies, shaken by concern about the impact on Poland’s economy from Britain’s decision to leave the European Union and investor worries that government policies may lead to fiscal worsening.

The Polish currency weakened 3 percent in the second quarter for the biggest drop since 2013 against the euro and the worst performance in developing markets after the Mexican peso. It trimmed its losses in a three-day relief rally this week after the Brexit referendum had initially fueled a global selloff. The currency gained 1.1 percent on Thursday and traded at 4.3725 per euro at 7:26 p.m. in Warsaw.

Poland is the biggest recipient of EU funds and the most liquid market for currency traders in eastern Europe, making it vulnerable to the immediate fallout from the British vote. New government policies including an increase in social spending, the consideration of a costly conversion of mortgage loans and the overhaul of the country’s top court also raised investor concerns, prompting them to sell the zloty in response.

“Fiscal and political uncertainties have been visibly hanging on zloty,” Piotr Bujak, the chief economist at PKO Bank Polski SA, the country’s biggest lender, said by phone. “With recent government pledges to keep the fiscal discipline in the next years and no further deterioration of investment climate, the currency may recover, especially as the economy is developing fast.”

Brexit won’t “significantly” change Poland’s fiscal policies and the government plans to keep the budget deficit slightly below 3 percent of gross domestic product, Deputy Finance Minister Leszek Skiba said in an interview with Dziennik Gazeta Prawna newspaper on June 28. Policy makers forecast the economy will grow 3.9 percent in 2017.

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