Polish parliament amends public finance law

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Prime Minister Orbán calms market worries

Polish parliament amends public finance law

On Friday, Prime Minister Orbán and Economy Minister Varga attempted to dispel fears of market participants concerning plans to convert foreign currency denominated mortgages into domestic currency debt. Orbán stressed that nobody wanted to wreck Hungarian financial system while Varga underlined that the state did not want to create a legal precedent for future public debt rescheduling and assured that current proposals would not be radical. The forint subsequently strengthened but its gains were short lived and the pair EUR/HUF returned back above 297 level by the end of the Friday session.

In Poland, the Parliament agreed on Friday to amend the public finance law so as to allow the government to raise its budget gap target for this year. The amended law should empower the government to relax a fiscal rule in case that the debt/GDP ratio exceeds 50 % (last year the debt has reached 52.7%). The cabinet intends to widen budget deficit by 16 bn PLN, which corresponds roughly to 1% of GDP, in order to support stagnating economy. The Senate and the President have yet to endorse the plan, but this should be a formality. All the more so that Prime Minister Tusk does not see a need to modify the second fiscal rule imposing more severe restrictions on fiscal stimuli if the debt-to-GDP ratio exceeds 55%.

Regional events scheduled for this week are unlikely to stir Central European markets. The only possible exception is the CNB Board meeting, which may impact the Czech koruna in particular. The Czech currency is permanently exposed to verbal interventions by some CNB Board Members and likelihood of currency intervention against it will further increase if the koruna is stronger than implicit prediction of its exchange rate available in a the CNB forecast foresees.