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The Warsaw Voice » Business » January 28, 2015
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Zloty Under Pressure
January 28, 2015   
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The end of last year and the beginning of this year were not a good time for the Polish zloty, which lost a lot of ground against major foreign currencies. In January, the euro at times cost more than zl.4.30, and the dollar overshot the zl.3.70 level, costing almost 20 percent more than just a few months ago. However, the Polish currency lost the most ground versus the Swiss franc after the Swiss National Bank announced its decision in the morning of Jan. 15 to stop reining in the value of the franc against the euro. Previously, the SNB held the franc fixed at at least 1.20 to the euro. The Swiss central bank’s decision to abandon the cap on the franc’s value against the euro caused panic on international markets, including Poland, where the franc soared to an all-time high of over zl.5. Even though later the franc subsided and was buying “only” 4.30 zlotys, that was still over 20 percent more than a day earlier.

Such a big depreciation of the zloty is surprising, because nothing really happened in Poland that could justify such a slide. The problem is that, despite the strong fundamentals of the Polish economy, investors pigeonhole the zloty together with risky emerging-market currencies.

According to some analysts, the latest weakening of the zloty may be a short-term trend resulting from events in Russia. This geopolitical factor plays the biggest role here. The current problems of the zloty, much as those affecting other emerging-market currencies, are traceable to the more expensive dollar and a growing aversion to risk. A further strengthening of the dollar against the euro could see investors shying away from Central and Eastern European currencies. And a withdrawal of foreign investors from this region of the world could aggravate the depreciation of the zloty still further.

The declining price of the Polish currency is a particular worry for those who are in the process of paying back loans denominated in foreign currency. Special attention is being paid to how the zloty is trading against the Swiss franc because a significant portion of mortgages in Poland are denominated in the Swiss currency. Any surge in the price of the franc could set off a series of bankruptcies and consumer insolvencies.

On the other hand, the relatively low price of the zloty is good news for exporters as well as foreign equity investors for whom the shares of companies listed on the Warsaw stock exchange have become more attractive.

For the time being, there is no reason to be concerned about the condition of the Polish currency, because fundamentally nothing has changed in the last two months. The Polish economy continues to look very solid compared with other emerging markets. That’s why, according to most analysts, the zloty should rebound in the near future though no one assumes it will manage to return to the kind of levels seen last year. There are uncertainties that are expected to inhibit the strengthening of currencies in the region, if not in all emerging-market economies.

Meanwhile, 2015 does not look set to be a quiet year around the world. The January terrorist attack in Paris showed that no country can feel safe. Nor is it clear how and when the conflict between Russia and Ukraine will end. Added to that are the unending problems of some eurozone countries. All this explains why the zloty, as well as other emerging-market currencies, may be subject to considerable fluctuations this year.
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