NBP will remain a "currency exchange office" for the Ministry of Finance. Anything to curb the złoty

The Ministry of Finance will continue to prefer exchanging foreign currencies at the National Bank of Poland, trying to avoid excessive strengthening of the zloty and the resulting excessive drop in inflation, which could reduce budget revenues, Citi economists say.

"The following months will see a sustained high rate of foreign currency exchange (by the Ministry of Finance - PAP). We expect that in the whole of 2025 Poland will receive around EUR 30 billion in EU funds, which is EUR 5 billion more than last year. The risk to this scenario is the achievement of the milestones set out in the KPO. Bond issues in foreign currencies are planned at around EUR 15.6 billion this year, but given the tense fiscal situation, we do not rule out that this plan may be increased," Citi economists point out.

"We assume that the Ministry of Finance will continue to prefer exchanging foreign currencies at the NBP, trying to avoid excessive strengthening of the zloty and the resulting excessive decline in inflation, which could reduce budget revenues," it added.

Citi economists emphasize that in 2024 the Ministry of Finance exchanged foreign currencies mainly at the central bank.

"The annual data of the Ministry of Finance indicate that foreign currency exchange in 2024 amounted to EUR 30.2 billion, which was an amount over 50 percent higher than transactions in 2023. The increased exchange was primarily the result of higher revenues due to the growing inflow of foreign currencies, mainly from funds from the EU KPO," the report reads.

" Out of the entire pool of funds exchanged by the Ministry of Finance, as much as EUR 25.3 billion (which constitutes almost 84 percent of the exchange) results from transactions conducted with the National Bank of Poland . Analyzing monthly data on currency purchases from the NBP, it can be concluded that the vast majority of funds resulting from the inflow of EU funds and the sale of currency bonds were almost immediately converted into zlotys" - it was added.

According to the authors of the report, the Ministry of Finance showed no interest in additional strengthening of the national currency.

"It is worth emphasizing that operations conducted on the currency market without the participation of the NBP account for only 16 percent of the MF's currency exchange. Moreover, this value is noticeably lower than in previous years (the average for the last 10 years is approx. 25 percent). In our opinion, these facts suggest that the authorities did not show any interest in additional strengthening of the national currency," the economists assess.

"The złoty remains strong in real terms (against major trading partners), and further appreciation could pose a risk of deterioration of the situation of exporters. According to the NBP study, the current EUR/PLN exchange rate is approximately 4 percent above the export profitability threshold, which is the lowest level since 2008," it added. (PAP Biznes)

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