Page 17 - Poland Outlook 2024

domestic banking system, the return of monetary policy by major central banks, favourable interest rate differentials, and the expected inflow of EU funds.
Key uncertainties for the budget forecast include: the tempo of nominal GDP growth, the direction of fiscal policy after the election, the scale and timing of military expenditures, and post-2024 EU fiscal rules.
6.0 Markets outlook
6.1 FX
Since the October election, the Polish zloty has strengthened over 2.2% against the euro and 2% against the US dollar, with developments like the final approval by the EU for Poland to tap into €5bn from the bloc’s pandemic recovery fund helping the trend.
“In effect, the Polish currency outperformed its major emerging market peers in the past month. We expect the NBP to remain relatively hawkish in the coming quarters, which should buttress the PLN [further],” mBank wrote in an analysis. The NBP policy will influence the zloty exchange rate alongside the ECB’s and, to a lesser extent, the Federal Reserve.
"A larger inflow of EU funds means, on the one hand, better sentiments around Poland but also realistically higher foreign currency deposits of the Ministry of Finance, which could be used for sales in the market,” according to an analysis by Santader Bank Polska.
Foreign currency deposits are also expected to increase on the back of net issuances of foreign currency bonds to the tune of €6bn-€9bn, as planned in the budget.
Analysts across the board agree that “the zloty will remain strong in 2024, with the average EUR/PLN exchange rate expected at below 4.3, with “volatility potentially increasing periodically due to political and geopolitical tensions”, according to Santander Bank Polska.
The US dollar will weaken more significantly, with analysts predicting nearly a 6% fall to PLN 3.78 by the end of 2024.
The main risk is the escalation of geopolitical risk in the region, a significant shift in the policy of the Bank of Japan, and faster interest rate cuts by the NBP, which could harm the zloty. The easing of the central bank’s monetary policy appears unlikely for now, with inflation projected to move back up after a strong dip to 6.1% in December (which is still markedly higher than the NBP’s target band of 1.5% - 3.5%).
There is a question mark about the new government’s reaction to the stronger zloty. “We think that the main priority will be to let the PLN appreciate to facilitate the funding of borrowing needs and to slow inflation. Any attempts to weaken the zloty will be difficult, as we see EUR/USD rising, which is typically
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