December 7, 2021

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The Polish zloty falls on the head and neck!  Euro (EUR / PLN) exchange rate is the highest since March of this year, Dollar (USD / PLN) as of March 2020, Franc (CHF / PLN) at all times!  What does this mean for the economy?

The Polish zloty falls on the head and neck! Euro (EUR / PLN) exchange rate is the highest since March of this year, Dollar (USD / PLN) as of March 2020, Franc (CHF / PLN) at all times! What does this mean for the economy?

Photo: freepik.com

Article URLArticle URLOn Tuesday morning, the euro traded at 4.65 zlotys, the dollar was 4.10 zlotys, and the Swiss franc was 4.42 zlotys. In recent days, the zloty has been exceptionally weak, which was caused by the strengthening of the dollar, NBP policy and political uncertainty related to the situation on the eastern border. Since the beginning of September, the premiums for housing loans denominated in euros have increased by 3.2%, and the Swiss franc – by 6.5%.

The Polish currency has gone through hard times in recent days,

The zloty remains the weakest against the euro since March of this year, and against the dollar since March 2020. The Swiss franc, an important currency for many Polish mortgage borrowers, is the most expensive in history (apart from the increase from January 15, 2015 – when the Swiss franc for a period of 5.14 PLN). The weakness of the Polish currency is due to global and domestic factors.

Globally, from the effect of strengthening the dollar, the weakness of the euro leads to a simultaneous weakening of other currencies, including the zloty. The dollar has been boosted by the announced Federal Reserve Asset Purchase Program, which precedes an interest rate hike in the United States. It looks like the first rate hike in the US could happen in June next year.

Local factors are also important for the zloty,

Because just like the zloty, other local currencies, such as the Czech koruna, are not weakened. NBP has been pursuing a policy of weakening the zloty for a long time, the goal of which was to support exports and, at the end of 2020, increase the profits of the Central Bank transferred to the state budget. These actions, combined with the highly opaque information policy regarding interest rate increases, make the market mistrustful of NBP. This gives room for further weakening of the zloty. Especially when there are additional concerns about the situation on the eastern Polish border.

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Untested forecasts prevail in the market – warning, frost is coming!

The weakness of the zloty becomes a problem for the economy,

Because Polish exports, on the one hand, are becoming cheaper and more attractive, many companies import a significant part of the components necessary for the manufacture of finished products. Many issuing companies hedge in the foreign exchange market against sudden changes in exchange rates, and the prices of these hedges increase with increased market volatility, which is what happens. It should not be forgotten that more expensive imported products can also increase the already high inflation in Poland even more.

The last two days brought a noticeable weakness in the zloty against the major currencies, which pushed the EUR/PLN above 4.63, and the USD/PLN reached a new high this year at 4.05. Recent days have brought noticeable strength to the US dollar, as the EUR/USD pair broke the ratio

The weak zloty is also a challenge to the stability of banks –

They still have large foreign currency loan portfolios in their portfolios. As of the beginning of September, the installment amount for the average contracted home loan has reached 300 thousand. The 30-year Polish zloty, in the euro, appreciated by 3.2%, in the franc by 6.5%. These increases are not a problem for most borrowers, but when the prospects for rate increases in the eurozone and Switzerland also materialize, the increases will be much larger.

It looks like we might expect a short rebound from the short-term increases and a slight strengthening of the zloty. However, in the long term, this trend is unlikely to be sustainable.

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