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UPDATE 3-Poland sees zloty turbulence at start of week after S&P downgrade
January 16, 2016 / 10:32 AM / 2 years ago

UPDATE 3-Poland sees zloty turbulence at start of week after S&P downgrade

* Poland says S&P decision was mistake

* Ministers expect temporary zloty moves at the start of week

* Minister says some 4.25 zloty per euro is a healthy level

* C.banker says zlotys should rebound soon (Adds more economy minister's comments on zloty)

WARSAW, Jan 16 (Reuters) - Poland shrugged off the impact of a downgrade by Standard & Poor's (S&P) on Saturday, saying the rating agency's decision was a mistake, but its ministers admitted they expected short-term turbulence for the zloty when markets open on Monday.

The ratings agency unexpectedly cut Poland's credit rating on Friday over moves by the new conservative government which it said weakened the independence of major institutions. It cautioned the rating could fall further.

The rating cut immediately sent the zloty currency to a 4-year low versus the euro.

Economy minister and deputy prime minister Mateusz Morawiecki, in comments on private radio RMF, said he was confident of the strength of the Polish economy and sure that investors would not be deterred by S&P's decision.

"Investors will not run away from Poland. I am not worried about the Polish zloty, as the general rule is that the faster an economy grows against another one, the country's currency strengthens," Morawiecki said.

In another interview on Saturday evening Morawiecki said that the zloty should strengthen in the coming weeks.

"I think that somewhere close to 4.25 zlotys (for one euro) - so as it was in the last months - is a healthy level, which we will soon reach again", Morawiecki told public broadcaster TVP Info.

Finance Minister Pawel Szalamacha echoed Morawiecki's views, describing the S&P downgrade as "an intellectual mistake" which he expected the agency to retreat from soon.

But they acknowledged there were likely to be fluctuations in the zloty currency at the start of the trading week.

"We will see what the market reaction will be. I assume it will be short-term, but zloty fluctuations are possible on Monday and Tuesday, but then there will be a return to fundamentals," Szalamacha told Reuters.

He said that after an initial nervous reaction he expected investors to focus on economic data which were positive. "It's too early to even think about a potential intervention to defend the zloty," he said.

S&P quoted laws, passed by parliament which is dominated by the ruling Law and Justice Party (PiS), regarding the make-up and voting rights of the constitutional courts and the media - both of which have raised concerns in the European Union that democracy could be under threat in Poland.

S&P cut Warsaw's foreign currency rating to BBB+ with a negative outlook from A- with a positive outlook, adding it could lower the rating even further if the independence of institutions like the central bank was further weakened.

Alluding to this, Morawiecki said: "I would like to stress that the Polish government accepts and will accept the independence of the central bank and, in this case, this is a very important economic partner."

Fitch confirmed its Polish A- rating on Friday with a stable outlook. Moody's, which rates Poland at A2 with a stable outlook, one notch above Fitch, did not publish its ratings review on Friday as expected.

Jerzy Osiatynski, a member of the central bank's monetary policy committee, was quoted by state-run news agency PAP as saying the weakening of the zloty after the ratings' cut was short-term and unjustifed.

"Looking at the effective exchange rate indicators it is obvious that the zloty is under-valued. Its purchasing power is much bigger," Osiatynski said.

"When it come to the prospects of the Polish economy competitiveness, there are no reasons for the exchange rate to be so weak. I think this is temporary and this is a question of weeks, if not days," he said. (Reporting by Agnieszka Barteczko; additional reporting by Pawel Sobczak, Anna Wlodarczak-Semczuk; Editing by Ralph Boulton)

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