The new proposal on the conversion of Swiss franc loans presented by the president's office on Tuesday is, as we expected, much more modest than the first proposal presented in January, meaning significantly lower cost for banks and a voluntary approach (at least initially).
Hence, despite lingering political uncertainty about the constitutional court and press independence with the EU as a prime example, the new loan conversion proposal is further evidence of more pragmatic economic policy making by the new government than feared by the market following last year's election.
The zloty has strengthened significantly since the new proposal was presented on Tuesday, extending the gains seen since the currency's slump following the Brexit vote at end-June. However, we think the market may have got ahead of itself and expect some weakening of the zloty against the euro over the next few months, given the lingering stand-off between Poland and the EU over the constitutional court issue and possible ramifications of the Brexit vote.
As a result our new forecast for the EUR/PLN is 4.32 in 1M and 3M (previously 4.40 and 4.37, respectively) and 4.28 and 4.22 in 6M and 12M, respectively (previously 4.30 and 4.24, respectively).
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