NEWS

23^rd October 2008 - Zloty sold off hugely in recent days

During the last few weeks, and accelerating this week, the Polish zloty (PLN) has fallen sharply against all major currencies. Currently, the zloty is trading at 3.92 / 1 EUR, 3.05 / 1 USD and 4.94 / 1 GBP.

This compares with only a few months ago, when the zloty was 20% higher against EUR, 30% against USD and 15% higher against GBP.

When considering the PLN/USD exchange rate, there are two factors at play. The sell-off of PLN in response to investor's increasingly negative outlook for the CEE region as a whole, and also the fightback by the USD against all major global currencies.

This week's steep falls in PLN have been prompted by the mounting crisis in Hungary, where the government has been forced to step in and raise interest rates by 3% in an emergency measure to stop a run on the Hungarian currency, the forint. Many investors have responded to this by paring back all investments in the CEE region, and as a result PLN has suffered by association.

From a purely rational perspective (not an idea which markets are responding to in the current environment), the zloty is now heavily oversold. The economic fundaments going forward in Poland still look favourable. Of course the country will not be immune to a global economic recession, but GDP growth is still expected to be in excess of 4% in 2009 and both inflation and unemployment are falling.

We believe that investors who need to transfer money to Poland should be looking to take advantage of this weakness in the zloty.

As for mortgages, well it is certainly turning into a roller coaster ride for those investors who have chosen to take out a foreign currency mortgage in Poland. With such a volatile currency, investors will find it hard to predict how much their monthly repayments will end up costing. (This of course doesn't affect those prudent investors who took our advice and have taken out PLN mortgages - they may not be the cheapest at present, but there is much greater stability in repayments).

Polish property owners holding a foreign currency mortgage at present would be well-advised to sit tight as despite the current uncertainty, we expect the exchange rate markets to return to some kind of normaly in coming months. After all, the zloty did undergo a period of solid appreciation against the major currencies before the recent sell-off.

Aggressive investors considering taking out a new mortgage at present should perhaps consider a mortgage in EUR/USD/CHF, as more than likely the zloty will rise from current levels, presenting an opportunity to capitalise on lower interest payments going forward.

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