The Polish zloty has been one of the best performing currencies of 2017 as it has benefited from a strong recovery in the Eurozone and a general cessation of Russian born fears. As we noted at the halfway point this year, the runs higher in growth, inflation and wages a lot of this zloty strength could easily have come from investors eager to hold on and add to holdings of Polish government bonds.
The outlook for interest rate increases remains benign and as long as inflation remains at 2% and growth stable at its current level of around 4% then we expect interest rates to remain at 1.5%. Any deviation from this is likely to be higher and will increase the attraction of the zloty versus the European single currency.
Poland as a whole is also relatively insulated from our larger global risks of a China/US trade slowdown or an overly strong tightening of interest rates in the US. Global growth has been strong in 2017 and while it may not continue at such a rate in 2018, we think the headwinds are likely to blow on others stronger than it will on Poland and its currency.