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Renata Karkowska
The strengthening of the zloty in the Polish currency exchange market
The article sets as its main goal presenting the phenomenon of the strengthening of the zloty in the Polish currency market. It opens with a brief history of the zloty exchange rate changes after April 12, 2000, when the floating rate was introduced, and the parity and the admissible +/-15% exchange rate fluctuations range were eliminated. In order to explain the strengthening of the zloty, the article analyses five major factors that influenced it:
- lowering of interest rates;
- budget deficit;
- inflation rate;
- investors' speculative activities following the Poland's EU accession process;
- liberalising of capital flow.
The article presents the characteristics of each of the factors, and follows with an analysis supplemented with examples and graphs.
Also ways of counteracting the appreciation of the exchange rate, and the instruments that the central bank has at its disposal to weaken the currency, are presented. Those include:
- direct NBP interventions in the currency market; and
- influencing the market to assure investors that no further lowering of interest rates is planned in the future.
Monitoring the exchange rates of other emerging markets currencies demonstrates that the phenomenon of appreciation is recorded not only in Poland, but also in the Czech Republic and in Hungary. Therefore it seems justified to claim that the increase in the exchange rate of those countries' currencies is motivated by a common factor: the approaching accession to the European Union.
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