The Polish zloty to pounds interbank exchange rate has hit 0.2144 today at the time of writing. This is the zloty’s highest versus sterling in 23 months, or since September 11th 2017.
By comparison, back on March 12th, the zloty was as weak as 0.1976 versus British sterling. So Poland’s currency has since strengthened by +8.3%.
This is because, when you transfer money to the UK from your Polish bank account, you could now get a higher pound sterling total, compared to any time in the last 23 months.
In turn, this would make it more affordable for you to emigrate to the UK, or increase the pound sterling total that your friends and family receive, when you send them regular payments.
To stay updated with the value of the Polish zloty against the pound, visit Pure FX’s Rates & Tools page. Here, select ‘PLN’ to ‘GBP’ to see the interbank exchange rates for the last week.
Also, to check what’s influencing the value of the zloty versus sterling recently, visit our PLN to GBP Exchange Rate Updates page. Here, click on the newest article for the latest news.
A first reason why the Polish zloty to pounds interbank exchange rate has reached this 23-month high is because the National Bank of Poland (NBP) may hike interest rates, looking forward.
A second factor why the zloty has gained in value versus sterling is because UK Prime Minister Boris Johnson continues to prepare in earnest for a ‘No Deal’ Brexit, by the end of October.
However, looking forward, the zloty to sterling interbank exchange rate might be affected, if the EU rules that Poland’s banks’ foreign currency mortgage loans are abusive to customers.
Please find below a more detailed explanation of these reasons why the Polish zloty to pounds interbank exchange rate has risen. You might find this useful, for your money transfer to the UK.
Polish Zloty to Pounds Rate Hits 23-Month High, as NBP May Lift Interest Rates
As I mention, a first reason why the Polish zloty to pounds interbank exchange rate has hit this 23-month high is because the National Bank of Poland (NBP) could hike interest rates, looking ahead.
This has contributed to increase the value of the zloty versus the pound, because when the NBP lifts interest rates, this makes buying zloty-denominated assets more profitable.
Poland’s central bank has held interest rates at 1.5% for over four years now, since 2015. Moreover, at the NBP’s most recent interest rate decision, Governor Adam Glapinski said that Polish borrowing costs look likely to remain steady until 2022, nearly three years from now.
In part, this is because Poland’s economy is growing faster than more-developed neighbours, like Germany.
Normally, when an economy grows quickly, we expect its central bank to lift interest rates, to put a limit on rising price pressures.
However, given that the Eurozone’s, and in particular Germany’s, economy is slowing, the European Central Bank (ECB’s) may soon cut interest rates, below 0.0%. In this context, by keeping rates steady, the NBP’s rates will still rise, next to the ECB’s.
That said, even though the NBP has held borrowing costs at 1.5% since 2015, and Governor Adam Glapinski predicts that they’ll stay steady until 2022, Poland’s central bank might nonetheless be obliged to lift interest rates in the foreseeable future.
This is because, what with Poland’s economy growing strongly, well ahead of the Eurozone’s, Poland’s inflation is rising quickly.
According to the NBP recently, Poland’s inflation rose by +0.3% in July year-on-year, to 2.9%.
This are the highest price pressures since October 2012, the sixth consecutive month of rising prices, and the second consecutive month above Poland’s central bank’s 2.5% inflation target. What’s more, it’s forecast that Poland’s inflation will continue to rise into 2020.
As a result, Poland’s central bank may be obliged to lift interest rates, to return inflation to target.
For example, Marcin Sulewski, an economist at Santander Bank Polska, said recently that: “We think that some hawkish signals from the Polish central bank could intensify in the months to come... this will be a supportive factor for the zloty.”
This has strengthened the value of the zloty versus the pound, because when the National Bank of Poland hikes interest rates, it’s more profitable to invest in Poland’s financial assets.
This encourages the world’s money managers to buy PLN-denominated assets, in turn strengthening the zloty’s value. In part as a result, the Polish zloty to pound interbank rate has hit this 23-month high.
PLN to GBP Exchange Rate Strengthens, as UK Plans for ‘No Deal’ Brexit
In addition, another reason why the Polish zloty to pounds interbank exchange rate has hit this 23-month high is because the UK government is planning in earnest for a ‘No Deal’ Brexit.
This has worried the financial markets, who are concerned that, if the UK exits the EU at the end of the extended deadline of October 31st without a deal, the UK’s economic growth could slow in future.
Since Boris Johnson became Prime Minister three weeks ago, he’s repeatedly insisted that the UK will exit the EU by Halloween.
For instance, Mr. Johnson has said that Brexit will happen by October 31st “come what may, do or die”, “no ifs, no buts”, and asked the EU to “look into our eyes” to know that we’re serious about leaving. So we see that the new PM is committed to Brexit.
Mr. Johnson is signalling that he’s committed to Brexit, because the Conservatives’ majority in the House of Commons stands at just one MP. Given this, it’s likely that Mr. Johnson will soon have to call an election, to increase his majority.
Mr. Johnson’s logic may be that, if he’s successfully achieved Brexit, whatever the terms, he’s likely to win more support from the voting public, reports The Guardian newspaper.
However, the financial markets are worried that Mr. Johnson is pursuing Brexit on whatever terms, whatever the cost.
For example, the new Prime Minister has refused to meet the EU’s leaders, unless they renegotiate the draft Withdrawal Agreement, and abandon the Northern Irish backstop. The EU has repeatedly refused to do this, saying that the draft is “the best deal available”.
In addition, the Prime Minister could be preparing to push through a ‘No Deal’ Brexit, against the wishes of a majority of MPs.
For instance, Mr. Johnson’s Special Advisor, Dominic Cummings, has said that Mr. Johnson can stay on as Prime Minister to achieve Brexit, even if he loses a vote of ‘No Confidence’ in Parliament. This would break with centuries-old political convention.
Also, investors are aware of the possibility that, even if Mr. Johnson calls a general election to increase his Parliamentary majority, he might not get it.
Instead, the Conservatives’ vote could be split with Nigel Farage’s Brexit Party, in which case Mr. Johnson might be forced to form a right-wing coalition. Or the opposition Labour Party might try to form a minority government.
With this in mind, the Polish zloty to pounds interbank exchange rate has strengthened, because the new Prime Minister’s commitment to Brexit may go to extremes.
This includes refusing to talk with the EU’s leaders, and pursuing a ‘No Deal’ against the wishes of Parliament, even if this slows the UK economy. Arguably, this is to increase Mr. Johnson’s hold on power after an election.
Zloty to Sterling Rate May Be Influenced, by Poland’s Currency Mortgages
However, even though the Polish zloty to pounds interbank exchange rate has hit this 23-month high, looking ahead, the value of the zloty might be affected, if the European Union rules that Poland’s foreign currency mortgages are abusive to their customers.
This could influence the zloty, because protecting against these loans could weaken Poland’s banks’ profitability.
In recent years, Poland’s banks have offered their customers mortgages in a variety of currencies. The idea is to take advantage of the zloty’s strength versus foreign currencies, to make mortgages cheaper for their customers.
However, the risk is that, when the zloty weakens, Poland’s homeowners suddenly find that their mortgage costs become too high to repay.
Given this, the EU’s highest court, the European Court of Justice (ECJ), is currently investigating whether Poland’s banks need to make provisions, to protect against the possibility that customers who’ve taken out foreign currency mortgages can’t repay them, reports financial news source Bloomberg.
Poland’s foreign currency loan market stands at $32 billion, a significant portion of Poland’s $586 billion economy.
According to ING, if the ECJ rules against Poland’s banks, they might need to book provisions worth up to $21 billion, or roughly 80 billion zloty.
This would be 20 billion zloty more than the Polish Bank Association forecast in June. In addition, to reach these provisions, Poland’s banks might have to lend less to Polish businesses and households, thereby slowing Poland’s economy.
Rafal Benecki, chief economist at ING Poland in Warsaw, recently told Bloomberg that: “If the EU tribunal issues a ruling that hits banks, it will instantly weigh on both the zloty and Polish debt.”
With this in mind, if you intend to transfer money to the UK from Poland in the near future, it could be worth watching for the ECJ’s ruling. This is because it may affect the value of the zloty.
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