Szałamacha in a letter directly relates to the expected decision of Moody’s and reiterates that the primary cause of the January cuts rating by Standard & amp; Poor’s was the situation around the Constitutional Court. Moody’s a few weeks ago clearly warned that the constitutional crisis in Poland increases the risk for foreign investors. Send a letter to the president of the Constitutional Tribunal interpreted so as an attempt to shift responsibility for the potential reduction of credit assessment.
The confusion surrounding the letter on Thursday caused a considerable weakening of the zloty. The euro lost 0.5 per cent., The dollar approx. 1 per cent. and according to Bloomberg’s weakness it was the highest among emerging market currencies.
Jakub Borowski, chief economist at Credit Agricole Bank Poland, estimates that the exchange rate can no longer take into account the risk of unfavorable for Polish decision of the agency. – At least a part of it is valued, weakening of the zloty in recent times it is difficult to explain global factors. Gold lost even when the currencies of other emerging markets gained in value. But in the case of bonds, the reduction may even result in an increase in their profitability – says Jakub Borowski. Credit Agricole assumes a reduction in the rating by Moody’s on one level along with lowering the rating outlook to negative.
Why bonds would lose value? The first effect of the potential reduction of the rating of the withdrawal of some Polish foreign investors. How does this mechanism explains Miroslaw Gronicki, a former finance minister. Along with the reduction of the rating of the group of investors interested in bonds lose so. big names, which is a large, stable, long-term buying Polish bonds.
– Such investors, constructing global bond portfolios, reserve enough space for the securities of certain ratings. In the case of issuers such as Poland managing this type of fund does not analyze in depth what is happening with us, only guided by the synthetic evaluation, which is the rating. When it is lowered, respectively the weight of Polish portfolio changes – specifically, our bonds are sold off. As it has happened after rating cut by Standard & amp; Poor’s – says Miroslaw Gronicki.
then the profitability of our 10-year Treasury bonds in two days jumped from 2.93 to 3.21 percent. (Rise in yields means a drop in prices of debt securities). Later it dropped slightly, but the difference in yields on Polish and German, which is now almost 3 pct., Is the highest in more than two years.
Reduction of the sovereign rating as such has implications for other issuers from this country, eg. local governments. If you would like to borrow on international markets, it would have to reckon with a lower credit rating, and thus higher costs of debt service. – Rating is the country ceiling for businesses. State principle is an issuer with a lower risk of bankruptcy than a private company established in that country – says Jakub Borowski.
– If large companies will want to borrow on external markets, also need to take into note that downgrading can they make it harder – adds Miroslaw Gronicki.
According to the former head of the Ministry of finance, if there is a reduction of the rating, it would be wrong to putting Moody’s similar charges as Standard & amp; Poor’s – the decision is politically motivated. – Today, investors do not have a sense of political stability in Poland. They do not know how government policy can affect bond prices. I see this agency. We are heavily indebted abroad – and I’m not talking only about the debt. Any turmoil that pose a risk to service this debt, have consequences – says Gronicki.
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