Zloty Climbs Most This Month as Fitch Gives Nod to Budget Plan

  • Fitch keeps Poland credit score at A-, with stable outlook
  • Bonds climb first time in five days, stocks reach 3-week high

The zloty climbed the most this month and Polish government bonds gained after Fitch Ratings forecast a budget deficit in line with the government’s projection.

Poland’s currency gained 1.1 percent to 4.3807 per euro, the second-best performance among developing nations in Europe after South Africa’s rand. Five-year bonds rose for the first time in five days, lowering the yield four basis points to 2.24 percent as of 4 p.m. in Warsaw.

Fitch forecasts the budget shortfall at 3 percent of gross domestic product in 2017, close to the government’s target gap of 2.9 percent, as it reaffirmed the country’s investment-grade status and stable outlook late Friday. Law & Justice’s “electoral promises of fiscal largesse” are expected to be softened, it said.

“Such confidence in the fiscal metrics is eye-catching,” said Manik Narain, a foreign-exchange strategist at UBS Group AG in London said by e-mail. “Poland has been a relatively unloved market in recent months, and we are seeing now some position squaring.”

Before a coup attempt in Turkey on Friday sent the lira tumbling the most since 2008, the zloty was the worst performer in emerging markets after Britain, the third-largest contributor to the European Union’s budget, voted to leave the bloc. Poland is the biggest recipient of EU development funds. The eight-month-old government had also spooked investors with plans to convert foreign-currency mortgages into zloty and cut the retirement age.

While Law & Justice’s policies had led to the nation’s first-ever ratings downgrade in January, Fitch on Friday noted the government’s decision to step back from a plan to convert all foreign-currency mortgages.

Some of the most controversial measures on the Law & Justice’s agenda during the electoral campaign have been avoided, Fitch said.

Fitch’s decision is making investors question whether the zloty’s weak performance after the Brexit vote is warranted, according to Ernest Pytlarczyk, chief economist at MBank SA in Warsaw.

“The gap may now start to close, with Turkey, another large emerging-market economy, becoming a much riskier place” after Friday’s attempted coup, he said.

The WIG20 Index of stocks climbed 1.4 percent, heading for the highest close since June 23.

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