EUR/PLN to rise gradually in coming year, likely to reach 4.50 by end-2017, says Commerzbank

In 2015, the Polish zloty started depreciating after the right wing PiS’ began ascending to power rapidly during the elections. The party’s fight with the Constitutional Court and restrictions it intends to enforce on public media set of an EU investigation on the rule of law, which in turn triggered a downgrade of credit rating by S&P. While political risk perception might be higher than two years ago, it has reached a plateau, stated Commerzbank in a research report. The fiscal deficit continues be in control at narrower than 3 percent.

The EUR/PLN pair is likely to rise gradually in the coming year due to a still neutral monetary stance and current-account developments, and not much because of political risks. The National Bank of Poland is expected to stay on status quo through 2018. In the meantime, the ECB is expected to taper its asset purchases and the U.S. Fed is expected to keep hiking rates.

The Polish current-account that rebounded significantly in 2015 and 2016 due to declining oil price is likely to go deeper into deficit as energy prices increase. Another factor negatively impacting the current account is that Poland is greatly exposed in the CEE region to the U.K. This is not just in terms of goods exports but also in terms of saving transfers and worker remittances, whose value has fallen greatly in zloty as the GBP has declined.

“So far, this does not seem to have affected PLN, but in the medium-term, we expect to see some impact as the current-account deficit visibly widens. We forecast EUR/PLN to reach 4.50 by the end of 2017”, added Commerzbank.