EUR/PLN: Zloty to continue recovering losses as COVID-19 shock fades – MUFG

Although PLN has rebounded modestly following the heavy sell-off early in 2020 in response to the initial negative impact from the COVID-19 shock, the Polish zloty weakened against the euro from 4.2555 to 4.5599 during 2020. According to analysts at MUFG Bank, the zloty is set to rebound further as COVID-19 shock continues to fade.

Key quotes

“We expect the zloty to rebound further in the year ahead as the negative COVID-19 shock continues to fade although gains are likely to be dampened by NBP intervention if required.”

“Recently the zloty has benefitted from building optimism over a stronger and more sustainable recovery in global growth in 2021 as effective vaccines have started to be rolled out. At the same time, the major central banks of the ECB and Fed have committed to maintaining loose monetary policies even as growth strengthens thereby maintaining a supportive environment for high beta assets such as emerging markets.”

“The zloty has also benefitted recently from the sharp slowdown in new COVID cases in Poland which have fallen by almost two-thirds from their November peak. The slowdown suggests that the government’s decision to impose tighter restrictions is proving effective. The tighter restrictions though increased downside risks to growth heading into the end of 2020. Poland’s economy is on course to contract by around -3.5% in 2020, but is expected to rebound more strongly by 4.0% in 2021.” 

“Poland’s decision to drop its veto over the EU budget and Recovery Fund is a supportive development for the growth outlook. We expect the NBP to leave its monetary policy unchanged in 2021.”