Poland's Rating Downgrade Triggers Zloty Sell-Off as EUR/PLN Hits New High

The Polish zloty has come under pressure from central banks and Poland's rating downgrade. The EUR/PLN exchange rate has moved above 4.36, while USD/PLN is around 3.81. This means that exporters to the euro area or the US will receive more zlotys for their foreign-currency revenues, but higher imported raw-material and energy costs may offset this benefit.

Poland's rating downgrade by Moody's from A2 to A3 with a stable outlook is also weighing on the zloty. The agency points to Poland's growth potential, supported in part by EU recovery funds, but notes that fiscal conditions were an important factor in the decision.

The higher sovereign risk premium can increase financing costs across the economy, and importers of technology, components, and raw materials face pressure on margins due to a weaker zloty. Higher oil prices and a stronger US dollar are particularly important for Polish companies because oil and many other commodities are priced in dollars.