The Poland zloty has been noticeably underperforming CE3 peers in recent weeks ahead of the coming weekend's general election; the decline of the PLN-HUF cross, for example, has accelerated since late-September. This is not only being driven by greater political risk perception ahead of general elections, but also by decelerating growth and inflation indicators, which is opening up the prospect of fresh rate cuts and possibly quantitative easing in 2016, states Commerzbank.
Opposition PiS is in a leading position in this election and is likely to change Polish policies in significant ways over the coming year (in our recent report "Poland - Coming election to raise risk premium" of 19 October we examined the main sources of risk). Yesterday, PiS leader Henryk Kowalczyk, a de facto economic spokesman, raised further concerns by calling upon the CenBank to promote growth.
Kowalczyk used the customary caveat - that PiS did not intend to "subjugate" the NBP - but we see it very likely that NBP will launch Hungary-style cheap lending schemes for SME's in 2016. This would be consistent with a large economy-wide investment push which PiS will look to launch next year if it came to power. In any case, QE is more likely than outright rate cuts once the benchmark rate has fallen to 1%, as expected it to do during H1 2016; and this prospect is now weighing down on the zloty, added Commerzbank.
