Polish Zloty: Easing Cycle Continues

Consensus Forecasts

The zloty plunged to an eleven-month low of 4.28/euro on May 30, as the downbeat economic outlook and tumbling inflation fuelled speculation of further monetary easing. As expected, the Polish National Bank cut its reference rate by 25 basis points to a new record low of 2.75% on June 5, after GDP advanced only 0.4% (y-o-y) in Q1, the slowest rate of expansion in four years. The Monetary Policy Council was afforded the room to loosen policy as inflation fell for a seventh consecutive month to 0.8% (y-o-y) in April, well below its targeted 2.5%. Near-term recovery prospects are bleak as high unemployment has hampered consumer spending. In addition, despite an improvement in May, the PMI for the manufacturing sector remains firmly in negative territory. The zloty slipped further in early June, as emerging market currencies suffered a fierce sell off on concerns that the US bond buying programme could be tapered off (see front page). Quantitative easing in the US has driven investors toward emerging-market assets, and stimulus scale backs may curb the zloty’s allure. The zloty pared some of its losses in the run up to our survey date after the National Bank intervened to prop up the currency. On a positive note, the pace of decline in the euro zone manufacturing sector has slowed, while an upturn in German business confidence in May lifted hopes of renewed export demand from the recession-hit bloc. In all, having lost 4.5% of its value in the year to date, the consensus is predicting the Polish zloty will appreciate over the next four quarters against the euro.

You can download a sample of Foreign Exchange Consensus Forecasts at www.consensuseconomics.com.

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