EUR/PLN likely to trade around 4.30 by end-2017

The Polish zloty is likely to remain volatile in the coming year, owing to policy risk. The fluctuation around a central target level of about 4.35 in EUR/PLN is expected, said Commerzbank in a research note. In 2016, there have already been sharp swings up to levels close to 4.50 earlier in January-February and also a rally back to 4.25.

Alternating bouts of declining political risk perception and effect of external developments, such as Brexit, have been driving these changes. However, the central EUR/PLN target has been revised to 4.35 from 4.45 last month as political risk perception is finally easing after the government altered its FX mortgage loan conversion plan, stated Commerzbank.

Now banks are likely to face just PLN 5 billion losses from a  ‘limited version’ of the scheme that would concentrate on reimbursement of bid-ask spreads, and forget regarding converting all loans to local currency. Markets, earlier, have been concerned regarding losses to the tune of PLN 60 billion from a full conversion of loans at non-market exchange rates.

“We still see EUR/PLN calming down to around 4.30 by the end of 2017 as policy visibility improves”, added Commerzbank.