It’s the Polish zloty.
So just how undervalued is the zloty? According to Deutsche Bank’s Global FX Research team, led by Alan Ruskin and George Saravelos, the currency is “extremely cheap” and undervalued by about 10%.
Poland’s economy expanded 3.0% year-over-year in the first quarter, and while that was the weakest growth in more than two years, economists maintain a favourable outlook on the country’s future.
DB says the macro outlook for Poland is “robust,” pointing to strong PMI data, unemployment near record lows, and rising wages among the reasons for their positive view. The team believes the Polish economy can grow at 3.5% in both 2016 and 2017, and they’re not alone. The European Commission recently upped its 2016 growth target for Poland from 3.5% to 3.7%.
Aside from a robust economy, the zloty is finding support from a hawkish central bank. In its most recent policy statement, released on May 6, the National Bank of Poland stated “there is no inflationary pressure in the economy” and that “persisting deflation has not adversely affected decisions of economic agents so far.”
And that is a key point, according to Deutsche Bank. The research team says this is evidence the will to cut rates simply isn’t there. While the NDP has room to cut rates because of low inflation, it believes rate cuts will be ineffective because of external factors. Here’s the NBP (emphasis ours):
External factors — particularly the earlier sharp fall in global commodity prices and low price growth in the environment of the Polish economy — continue to be the main sources of deflation.
According to DB, “The NBP’s bar for further easing is high, with Governor Belka unlikely to switch stance towards a cut at his final meeting in June, and his successor Glapinski is a known hawk.”