Over the past year, the Polish złoty has strengthened significantly – rising by 8% against the Euro and over 10% against the USD. However, recent figures show that core inflation has not decreased as much as expected. The difference between core markets and Poland – when investors are willing to take on a certain level of risk – has led to the strengthening of the Polish currency due to the inflow of capital. On the other hand, this trend is not as evident in the debt market, where foreign investors have been withdrawing in recent years. In 2023, the share of foreign investors in Polish government debt dropped to just over 30%, the lowest level in many years. While the first months of 2024 saw a slight rebound to nearly 32%, these may be speculative investors. Nonetheless, the outlook for the Polish economy is improving.
“This is somewhat surprising, as we previously experienced fluctuations in the Polish currency – particularly when the full-scale war in Ukraine began in 2022. After that, the situation stabilized, but I’d like to remind you that 2023, when the Polish currency started to strengthen, was a tough period for the Polish economy, with GDP growth of only 0.2%,” said Grzegorz Sielewicz, chief economist at COFACE for the Central and Eastern European region, in an interview with eNewsroom.pl. “The Polish currency is also influenced by investor sentiment and their outlook for the country’s future. One positive factor is that Poland is due to receive significant funds from the EU budget, specifically from the Recovery and Resilience Facility (KPO). There is still strong confidence in the Polish economy, with opinions that it will continue to strengthen. This has been confirmed by recent quarters of gradually increasing economic growth. But let’s not forget about the external factors, which have become very important for the Polish currency and even for the economy as a whole. We see that the European Central Bank has already begun a cycle of interest rate cuts. These cuts are ongoing, but the cost of financing remains relatively high. In Poland, interest rate cuts occurred some time ago, and now the Monetary Policy Council is not expected to act as quickly. Investors find this appealing, and it attracts foreign capital – particularly in a country where higher interest rates are associated with an acceptable level of risk. The path of interest rate cuts by the US Federal Reserve will largely depend on what happens with inflation going forward. In Poland, there are still many risks, especially from foreign markets and weak recovery in Western Europe, including Germany. However, one could say that the worst is behind us, and inflation, which remains higher than the target set by the Monetary Policy Council, is making higher interest rates in Poland an attractive factor for foreign capital,” Sielewicz concluded.
Source: https://managerplus.pl/zloty-mocniejszy-niz-kiedykolwiek-co-napedza-wzrost-polskiej-waluty-53581
