Weaker zloty not justified by fundamentals
Overview:
Poland continues to record strong economic growth despite the ongoing global financial crisis. It will see some slowdown in H2 2011 and 2012 but will remain one of the best performers in the EU. The Inflation Targeting regime is credible and the current account deficit is manageable. Despite this, the zloty has weakened substantially (along with other major regional currencies) in the last few weeks due to a sharp rise in risk aversion on the global financial markets. The central bank has responded by selling FX to stabilise the currency. This is an unusual occurrence. However, the central bank argues (credibly) that the recent sell-off is not justified by fundamentals. Indeed, parliamentary elections have, it seems, just delivered another PO/PSL government which will be broadly welcomed by investors.