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Zloty Strong Amid EU Aid, Housing Stimulus Concerns

Zloty shows resilience amid economic adjustments, with EU aid and FDI inflows balancing housing market and political uncertainties.

By Athena Xu

5/16, 05:13 EDT
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Key Takeaway

  • The Polish zloty remains strong due to cautious monetary policy, a return to current account surplus, and €130 billion EU aid, despite concerns over rising debt and spending pressures.
  • Poland's proposed 21.5 billion zloty housing market stimulus faces criticism for potentially inflating property prices and benefiting cash-rich investors amid political uncertainties.
  • Poland's MPC delays interest rate cuts until early 2025, focusing on inflation risks and economic challenges from the housing stimulus, bolstering the zloty against the euro.

Zloty's Resilience Amid Economic Adjustments

The Polish zloty has shown notable resilience, buoyed by a combination of cautious monetary policy, a return to current account surplus, and robust capital inflows, particularly following the unblocking of a substantial €130 billion EU aid package. Bloomberg Intelligence Emerging Markets Rates and FX Strategist Sergei Voloboev highlights these factors as key to the near-term outlook of the zloty. Additionally, positive medium-term drivers such as strong foreign direct investment inflows and improved economic growth prospects contribute to the currency's appeal. However, these are balanced against concerns over spending pressures and a rising debt stock. The long-term outlook remains positive, underscored by solid GDP expansion and export potential, alongside Poland's attractiveness to foreign capital. Nonetheless, geopolitical turmoil and a narrow base of political support present ongoing risks.

Housing Market Stimulus Concerns

Poland's government is reevaluating its proposed housing market stimulus amid fears that it could exacerbate affordability issues by inflating property prices in an already booming market. The proposed 21.5 billion zloty stimulus, aimed at reducing mortgage rates potentially to zero percent, has sparked debate and concern, particularly among the younger population. Critics argue that the plan, while intended to make housing more accessible, could instead fuel demand and benefit cash-rich investors, echoing the effects of past subsidy-induced price spikes. The plan's lack of cabinet and parliamentary approval adds to the uncertainty surrounding its implementation.

Political and Market Dynamics

The stimulus plan, emerging from political competition during the last election campaign, aims to be inclusive with no purchase price limits but income-based accessibility thresholds. However, real estate experts, including Kazimierz Kirejczyk from JLL, caution that the plan could lead to increased demand and a rush in the housing market, reminiscent of previous subsidy programs that spiked mortgage demand and property prices. The evolving stance of the government on the stimulus, coupled with political uncertainties and the departure of the minister in charge of the project, has introduced volatility into the market, affecting both construction and purchasing decisions in the housing sector.

Interest Rate and Inflation Outlook

In light of the housing market concerns, Poland's Monetary Policy Council (MPC) has indicated a delay in anticipated interest rate cuts, pointing to early 2025 for potential discussions on rate reductions. This cautious approach, led by Governor Adam Glapinski, is influenced by factors such as energy prices, food costs, wage growth, and inflation expectations. The market has adjusted its expectations, reducing bets on borrowing cost cuts and strengthening the Polish zloty against the euro. This stance reflects the MPC's commitment to addressing inflation risks while navigating the economic challenges posed by the proposed housing market stimulus.

Street Views

  • Sergei Voloboev, Bloomberg Intelligence (Bullish on the zloty):

    "The zloty’s near-term outlook is bolstered by cautious monetary policy, the current account’s return to a surplus and steady capital inflows after a €130 billion EU aid package was unblocked... Positive medium-term drivers are strong foreign direct investment inflows and better economic growth prospects, contrasted by spending pressures and a rising debt stock. Longer-term drivers include solid GDP expansion and export potential, plus Poland’s attractiveness to foreign capital."