Poland's zloty slumped to its weakest level in nearly three years on Monday, extending losses amid a deepening selloff. Investors are retreating from risky assets while a growing conflict between the government and the central bank fuels market uncertainty. The currency slid as much as 0.2% to 4.4096 against the euro, down 4.3% so far this year and on track for its worst performance since 2020.
Poland runs a budget deficit of around 7% of GDP, one of the widest shortfalls in the European Union, which recently triggered the first sovereign credit downgrade in a decade. Adding to the pressure, a row over the functioning of Poland's central bank has unnerved investors. Furthermore, fiscal challenges facing France are denting sentiment for European assets.
Poland sells 60% of its exports to countries in the euro zone. Economists at PKO Bank Polski SA expect the zloty to end October at around 4.40 per euro. Further weakening past 4.5 per euro could prompt policymakers to raise interest rates.
Monetary Policy Council member Marcin Zarzecki warned that past 4.5 per euro could tip policymakers to raise rates, while fellow panelist Przemyslaw Litwiniuk insisted the zloty remains "strong." These varying comments elevate uncertainty over the outlook for Polish rates at a time Governor Adam Glapinski faces a parliamentary vote which could see him put on trial in front of a special tribunal and potentially suspended.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing