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Although Poland benefits tremendously as a recipient of EU funds, the most important benefit Poland derives from the EU is its ability to participate in the international market, trading as an EU member.
On the policy front, the focal point for this year is on implementation. A number of measures will get implemented this year, and further laws will be passed, providing a clearer picture of whether the current combative government will manage to refine its tactics.
The factor of negative real interest rates will continue to stimulate debate at the NBP regarding the timeline for tightening.
We anticipate the resumption of the interest rates hiking cycle in 1Q 2018.
We have returned from a recent investor research trip to Warsaw, where we met with key official institutions including the National Bank of Poland (NBP), the Ministry of Finance, the US Embassy, as well as international financial institutions, rating agencies, local banks, and local economists. The following pages highlight our key findings.
We are modestly bearish PLN against EUR over the medium term. The zloty is currently around fair value, but with a little premium for risks including foreign divestment from the banking sector and political contagion from Europe.
One recent positive development is that compulsory FX mortgage conversion now seems unlikely.
Zloty support from interest rates is limited from current levels, with the market pricing rate hikes in line with JPMorgan's economists over the next 2 years.
Trading tips:
Please be noted that the ATM IVs of EURPLN is at shy above 5.6% and a tad below 6.4% for 1 and 2 months tenors respectively.
Enter a new EURPLN 2m1m diagonal call spread (4.32/4.2235), spot ref: 4.2440. The above diagram reflects in 1-month implied volatility with a forward start of 15 April (i.e. just before the commencement of French presidential elections) for a number of currency pairs.
