What will happen to the EUR/PLN pair in 2024?
EUR/PLN exchange rate forecast
The euro to zloty exchange rate is the lowest in the last three years. Since the beginning of 2023, the euro to zloty exchange rate has fallen by 7.6%. In January we paid 4.69 PLN for the euro, and in February even 4.80 PLN. Now the figure has fallen to 4.33 zloty.
Last week, the euro fell to its lowest level since 2020, even below 4.30 zloty. However, do not expect this movement to continue in the new year.
According to Maciej Przygórzewski, chief analyst at Currency One, a strengthening of the zloty this year seems unlikely. He explained that there are several reasons for this.
"Firstly, we are prone to corrections in the markets. However, those who made money on this movement may want to take profits", Maciej Przygórzewski, chief currency analyst at Currency One, said in a commentary for FXMAG.
"Second, the political optimism of the new government will end at some point and then we will see that maybe new ministers will come in, but the problems will remain old and the budget will not survive another term with borrowed money. Third, unless something very strange happens with inflation, Poland will cut interest rates faster than the ECB, and as a result will hinder the zloty rather than help it. Unless inflation rises in December", he added.
The Currency One expert noted that there is an important period ahead for the National Bank of Poland. There is a possibility that we will see intervention in the foreign exchange market.
At the end of the year, the NBP is dealing with the issue of "profit" in the budget. Since a profit is a change in the valuation of currencies, which is a very strange concept, it will be a terrible loss this year with the strengthening of the zloty. There is a lot of talk now about intervening in the market to dye the grass green.
EUR/PLN Forecast from BNP Paribas
The National Bank of Poland has already cut the interest rate twice in the fall of 2023. First by 75 bps in September and then by 25 bps in October. As a result, the NNP prime rate currently stands at 5.75%.
According to BNP Paribas economists, we will have to wait up to 11 months to find out the NNP's future actions.
"In our baseline scenario, we assume that the NBP will not resume monetary easing until November 2024", BNP Paribas economists say.
"Following the NBP's aggressive turn in November, we slightly adjust our end-2024 target interest rate to 5.25% and expect a 50 basis point rate cut in the fourth quarter of 2024", they added.
The NBP's hawkish turn should support the zloty's appreciation, BNP Paribas analysts emphasized.
"We have therefore revised our November euro/zloty exchange rate forecast and now see the pair falling to PLN 4.25 in the third quarter of 2024", BNP Paribas experts said.
"We believe that Poland's inflation forecast for 2024 (we see it in the 5-7% range) simply will not allow for a resumption of the exchange rate decline as quickly as the market expects".
The end of the euro/zloty depreciation
Analysts at HSBC expect the euro/zloty exchange rate to remain stable at PLN 4.30 in 2024. This level is also expected by the end of December this year.
However, UniCredit economists expect the zloty to strengthen further. They believe that in the first quarter of 2024 we may see the euro to zloty exchange rate at 4.25 zloty. They then expect a gradual appreciation to 4.27 zloty in the second quarter, 4.30 zloty in the third quarter and 4.40 zloty in the fourth quarter of 2024.
"The zloty benefited more from the current drop in central market yields as it was supported by the aggressive change in the NBP's rhetoric and better risk perception after the formation of the new government", UniCredit experts commented.