Polish markets soar as polls point to Tusk victory

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Poland’s currency and stock market rallied strongly on Monday as investors welcomed the prospect of a return to office for former prime minister Donald Tusk following the country’s crucial parliamentary election.

The Warsaw exchange’s WIG index was up 3.5 per cent by late morning, while the region-wide Stoxx Europe 600 index was flat. Polish bank stocks were the biggest gainers, led by state-controlled Pekao and PKO Bank Polski, up 11 per cent and 8.7 per cent respectively.

The zloty jumped 1.9 per cent against the euro in early morning trade before settling to trade 1 per cent stronger on the day at 4.49 zlotys a euro.

The moves come as Tusk’s Civic Platform and two other opposition parties were on track to win 248 of the 460 seats in the lower house of parliament, according to exit polls by Ipsos, the last of which was published early Monday.

If confirmed by the vote count, the result could end eight years of government by the Law and Justice (PiS) party, and allow Tusk to reposition Warsaw on a pro-European path, restore the independence of judges and unlock billions of euros of EU funding that was withheld by the European Commission in a feud with the PiS over judicial reforms.

“Forming a pro-European government that would prioritise the rapid unlocking of funding . . . would reduce the political risk premium,” said Bartosz Sawicki, a market analyst at Conotoxia. “An increased flow of EU funds would help the economy regain traction.”

While the government could soon change hands in Warsaw, the National Bank of Poland is set to remain under the helm of pro-PiS central bankers, led by its president Adam Glapiński, whose personal relationship with PiS leader Jarosław Kaczyński dates back to the 1990s. 

Glapiński was made governor of the central bank in 2016, shortly after PiS returned to power, and was reappointed to a second term of six years in 2022. During the campaign, opposition politicians vowed to replace Glapiński if elected, although cutting short his mandate would be difficult under Polish law.

Poland’s central bank stunned financial markets in September when it cut its benchmark interest rate by a larger than expected 0.75 percentage points to 6 per cent, despite double-digit inflation. It then made another quarter-point cut this month.

Tomasz Wieladek, chief European economist at T Rowe Price, said that the central bank “would probably become more hawkish going forward in line with its inflation mandate” and that market concerns about the politicisation of the central bank would be priced out.