Zloty weak pending release of C/A figures
The zloty, though weakening against the dollar, is still holding its own two weeks after being free floated, analysts said.
The Polish currency, after an initial strengthening, has been gradually losing value against the dollar ever since it was unleashed from its 30-point trading band and central parity rate on April 12.
The current downward trend is temporary and could reverse in the near future as long as the current account deficit for March to be released May 4 doesn't look too discouraging, analysts said. The zloty dipped in value to more than 4.485 to the dollar last week and has lost 7.79% since flotation. It finished the week at 4.471.
"(The account deficit) could influence the further weakening of the zloty, but again, you should not forget it should be only a temporary situation because we're still awaiting the big privatizations ... this year," said Dariusz Filar, Bank Pekao's chief economist.
As inflows from ongoing sell-offs of state enterprises begin bolstering the economy in the latter part of 2000, the zloty should become more potent, Filar said.
In the meantime, he said, an increasing level of zlotys per dollar probably won't add more than another 10 basis points or see levels much weaker than zl. 4.40 to one dollar. If the trading band still existed, he said, the zloty at 4.3 to the dollar would be somewhere around 2% above the now-defunct central parity rate.
"Looking back at the time when we had parity and the fluctuating band, it could be below five (zlotys to the dollar) and below five is still acceptable," Filar said. "I would call (current levels) just an adjustment process."
Besides, analysts said, the central bank and government might well have furtively planned for a weaker currency when it unleashed the zloty and made it a riskier investment. A weaker zloty renders imports more expensive and Polish exports cheaper, thus narrowing the current account gap.
Either way, up or down, notes Tomasz Wlad, senior foreign exchange trader with Amerbank, "The future is wide open for Poland ... It's only a matter of time before we see lower levels of the zloty against other currencies."
Amerbank and Bank Pekao are expecting the current account deficit, the first significant macroeconomic indicator to be released since the flotation, to be above $1 billion vs.February's $949 million. That would put the deficit, currently at 7.8% of gross domestic product, above 8%, but analysts are counting on continued improvement in inflation, industrial output and export levels.
"The Polish economy should grow in the right direction. All of the figures released in the near future should only be a little better, but (still) better," Wlad said. "I hope that before October we'll see the zloty below 4.0."
Although relatively weak against the mighty dollar, the zloty isn't an all-around weakling in foreign exchange markets. At the same time the zloty deteriorated against the dollar, it strengthened against a falling euro. The euro slid in value, closing last Friday at 0.9107 to the dollar.
"This cross-rate (euro to dollar) is of paramount importance for the Polish currency and it's evident right now," said Krzysztof Bledowski, chief strategist for Wood & Co. brokerage. "When we have a strong dollar, then we have, by default, a weak zloty vis-a-vis the euro."
Poland receives payment for exports mostly in euros while handing out mostly dollars for imports, Bledowski said, adding that the loss of money through currency disparities could have a significant impact on the trade account several months in the future.
Pekao's Filar expressed it in another way. A weak euro makes Western European products more competitive, not only in Poland and the European Union (EU), but also in "third markets," he said. Also, 60% of Poland's exports go to the EU and are fixed in euros, he said.
While Poland awaits C/A figures and keeps hoping for increased exports, however, the zloty continues to attract high-rolling foreign investors eager to see quick profit from high yields on Polish debt. But, similar to what's been happening on the stock market, even they're staying in the shadows during the holiday season, Amerbank's Wlad said.
"The main reason, in my opinion, why the Polish zloty at the moment is relatively weak is because foreign investors are taking a break before the (C/A) figure is released," he said.
In related news, Poland's Monetary Policy Council (RPP) last week didn't raise interest rates any further from the 350 to 450 basis-point hikes seen since last fall, but indicated that inflationary pressures are still a significant cause for concern.
