The zloty is likely to come under renewed pressure from political turmoil in Poland, according to analysts, despite gains on Monday in the wake of the president’s veto of two bills that would have undermined the independence of the country’s judiciary.
The currency at one stage rose 0.8 per cent in response to a press conference held by President Andrzej Duda announcing the vetoes.
The ruling Law and Justice party (PiS) is facing increased international criticism for seeking constitutional changes, moves that have brought thousands of Poles on to the streets in protest over recent days.
The zloty’s gains were pared back by more than half and remain well below the 1.3 per cent loss incurred on Friday, its biggest fall of the year. Relations with the EU have deteriorated and European Commission vice-president Frans Timmermans last week warned it was close to issuing a formal warning against Poland.
Citigroup said the vetoes, which would have forced Supreme Court members to step down and given parliament control over the body that appoints judges, lowered the risk of EU sanctions and should be positive for Polish assets.
But the prospect of the ruling party tabling a new bill meant the zloty “may trade with a persistent degree of political uncertainty risk premium”, said Petr Krpata, ING analyst.
The president’s vetoes had prevented a bigger sell-off in the zloty, said Piotr Matys, emerging markets forex strategist at Rabobank, but they put him on a collision course with Jaroslaw Kaczynski, leader of the PiS.
The warning for foreign investors, he said, was that the PiS could continue to erode democratic checks and balances and work towards Mr Kaczynski’s long-term goal of overhauling the economy and change the media, the education sector and the judiciary.
“Essentially, a new political conflict could be in the making not only between the PiS and the opposition, but also between Kaczynski and Duda,” said Mr Matys. “Consequently, [the] atmosphere in Polish politics could be even more toxic and may weigh on [the] business climate.”
Strong growth, fuelled by rising wages, consumer spending and eurozone recovery, has lifted the zloty of late. In the first half of the year, it was 12.2 per cent higher against the US dollar and had gained 3.6 per cent over the euro.
But investment is sluggish, said Mr Matys, and the zloty may struggle to recover its momentum “as political risk is unlikely to evaporate completely”.
The zloty came under pressure last year when constitutional changes led to a ratings downgrade from S&P.
Poland’s economic fundamentals remained strong, said analysts at investment research group TS Lombard, but the reactions of rating agencies this autumn to any further changes to the country’s institutions “will be worth watching”.