Polish elections: absolute majority for Law and Justice?

Sunday´s parliamentary elections in Poland vindicated pre-election expectations. Exit-polls suggested clear victory of the main opposition party,(Law and Justice (PiS), which may even gain the absolute majority in the Sejm (the Lower House of the Polish Parliament) and thus form a government of its own without need to look for a coalition partner.

Markets absorbed news about preliminary election results calmly, shrugging off the fact that PiS can be most likely empowered to implement measures that may irritate them. Let us recall that PiS´ fiscal plans outlined ahead of the vote could worsen budget deficit to GDP ratio by 1 - 2 percentage points. Moreover, the PiS reconfirmed its intention to impose a Hungary-like special tax on the banks (0.39% of their assets). In addition, the PiS are also likely to resolve a longstanding issue of Swiss-franc mortgages in a way less favourable from banks’ perspective (compared to competitive alternatives). The latter two measures may undermine bank lending activity and adversely impact Polish economic growth. Obviously, markets will be on alert to see how far the PiS will follow the Hungarian way of interfering in selected sectors of the economy.

Poland’s elections were not just about fiscal policy but also about the central bank. The new Polish Parliament will appoint 6 out of the 10 members of the NBP leadership early next year. In addition, the recently elected President Duda (also from the PiS) and the Sejm will jointly appoint a new NBP Governor in 2016, and it is no secret that the current Governor Marek Belka will not be among their favourites. Thus, if the NBP leadership is completely replaced, the zloty can, at least temporarily, suffer of the fear that central bank’s monetary policy would become dependent on government’s policy. However, as the well-established inflation-targeting regime will not be affected, the fear of changes at the helm of the NBP should fade away. On the other hand, given the PiS´ euro-sceptic stance, the zloty will not be replaced by the euro in foreseeable future.

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