Weak zloty may mean a higher interest rate hike

The zloty remains record weak and is recording levels close to long-term lows. Due to the situation in Ukraine, capital flows out to markets perceived as safer. Possible that NBP will decide for a higher rate hike, because it may be a more effective way to strengthen the zloty than temporary interventions. As a result of the Russian invasion, the Ukrainian hryvnia depreciated less than the Russian ruble.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

The NBP intervenes in the zloty market

On Tuesday, for the first time in 10 years, the NBP intervened in the currency market to strengthen the zloty. The zloty exchange rate against the dollar reached PLN 4,33 and was the highest in 21 years, the exchange rate against the euro exceeded PLN 4,80 and was close to the historical record of the weakness of the zloty in 2009. The intervention brought only a temporary effect, because after breaking the rate from 4,80 to 4,67, the zloty continued to weaken. Currently, we pay PLN 1 for EUR 4,77, and PLN 4,32 for USD.

It will meet on Tuesday The Monetary Policy Councilto decide on the level of interest rates. The market currently expects that, as in previous months, there will be a 50 bp rate hike It is possible, however, that due to the current situation of weak zloty, the Council will decide on a higher rate hike. This could have an impact, more effectively than temporary interventions, on the strengthening of the zloty. This is because weak zloty makes it difficult to lower inflation.

The more so that the current weakness of the Polish currency is also the effect of the earlier actions of the NBP, which supported the weakening of the zloty in the past. We entered the situation of increased global risk related to war when the zloty exchange rate was PLN 4,50 per euro, which is much higher than the long-term average. The weak zloty causes the installments of mortgage loans in foreign currencies to increase significantly. The more so that the exchange rate of the Swiss franc is also recording records, for which you have to pay about PLN 4,70.

Why is PLN losing value?

The weakening of the zloty and other currencies of the region is related to the situation in Ukraine, which results in the flight of capital from markets considered more risky to the safer ones. Poland is affected twice by this because, on the one hand, it is perceived all the time as a developing market, and it is from such markets that capital flows out of the current situation looking for safer havens. On the other hand, our geographic proximity to Ukraine and the conflict also enhances the perception of risk towards the Polish market.

The zloty exchange rate is also affected by concerns about the stability of public finances related to the influx of refugees from Ukraine. So far, the Polish border has been crossed by over 0,5 million people, some of whom did not stay in Poland, but went to other EU countries. Forecasts indicate an influx of as much as 1 million (Minister of Foreign Affairs Rau) to as much as 3 million refugees (UNHCR) to Poland, depending on the development of the situation in Ukraine. 

Obviously, the exchange rate of the Ukrainian hryvnia has also weakened recently. However, the drop in the rate is lower than in 2014, when the Crimea was annexed and the war in Donbas took place. The hryvnia also depreciated less than the sanctioned Russian ruble, which has lost 10% in the last 32 days. your worth. At the same time, the hryvnia depreciated against the dollar by 7%. As a result of the depreciation of the zloty, the official exchange rate of the NBP hryvnia remains unchanged and amounts to approximately PLN 14. However, in exchange offices the hryvnia is bought at 9 groszy.