Currency Report
The EUR/PLN rally to the 4.37 level was partly caused by the slight depreciation of the PLN. During that time the EUR/USD reached a peak of 1.2840 (just 1 cent less than the historical maximum). What contributed to the rally of the EUR/PLN. In our opinion the depreciation of the EUR/PLN we were facing last week should be considered as a correction that wasn't caused by any fundamental factors. After such a long period of constant appreciation of the złoty, the correction had to come sooner or later.
Investors' attention was mainly focused on the monthly meeting of the Monetary Policy Council (RPP) and its decision on interest rate levels. This time, after a few earlier unexpected decisions, the RPP didn't suprise investors. In accordance with predictions, interest rates remained unchanged. This decision didn't affect the financial markets. Currently investors are awaiting the next inflation projection, which will be issued by the Polish Central Bank in November. Keep in mind that the latest projection assumed the vision of strong inflation growth in 2005. Due to the fact that the latest forecast was strongly criticized by many economists, we expect that this week the Polish Central Bank will revise its inflation prediction. Concurrently, we assume that the cycle of interest rate increases hasn't finished yet. The coming RPP meeting could bring a lot of disturbance on forex markets, in our opinion an interest rate increase of 25 bp is quite probable.
We expect that the coming week should bring an appreciation of the PLN. The deviation from historical parity should return to the area of -9%. Foreign investors willing to purchase PKO BP shares should create the demand side for the PLN. In our opinion the magnitude of złoty purchases won't be sufficient to move the market, however, they should create a positive attitude toward the PLN market. A stronger correction of the złoty should come in mid-November.
The reactions of Polish politicians to the increase in value of the złoty are moderate. However, we should note that Minister Hausner has lately emphasized the fact that entry into the ERM2 system would require a weaker złoty. So far the vast majority of politicians and economists claim that until the złoty drops below 4.25 the Polish export shouldn't be hampered.
By Marek Zuber
chief economist TMS
Supplied by Treasury Management Systems
www.tms.pl
Investors' attention was mainly focused on the monthly meeting of the Monetary Policy Council (RPP) and its decision on interest rate levels. This time, after a few earlier unexpected decisions, the RPP didn't suprise investors. In accordance with predictions, interest rates remained unchanged. This decision didn't affect the financial markets. Currently investors are awaiting the next inflation projection, which will be issued by the Polish Central Bank in November. Keep in mind that the latest projection assumed the vision of strong inflation growth in 2005. Due to the fact that the latest forecast was strongly criticized by many economists, we expect that this week the Polish Central Bank will revise its inflation prediction. Concurrently, we assume that the cycle of interest rate increases hasn't finished yet. The coming RPP meeting could bring a lot of disturbance on forex markets, in our opinion an interest rate increase of 25 bp is quite probable.
We expect that the coming week should bring an appreciation of the PLN. The deviation from historical parity should return to the area of -9%. Foreign investors willing to purchase PKO BP shares should create the demand side for the PLN. In our opinion the magnitude of złoty purchases won't be sufficient to move the market, however, they should create a positive attitude toward the PLN market. A stronger correction of the złoty should come in mid-November.
The reactions of Polish politicians to the increase in value of the złoty are moderate. However, we should note that Minister Hausner has lately emphasized the fact that entry into the ERM2 system would require a weaker złoty. So far the vast majority of politicians and economists claim that until the złoty drops below 4.25 the Polish export shouldn't be hampered.
By Marek Zuber
chief economist TMS
Supplied by Treasury Management Systems
www.tms.pl
