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Poland's Zloty 43% undervalued


Harry
3 Jan 2012  #1
Big Mac index: złoty undervalued by 43%
3rd January 2012
The Polish currency is expected to rise in value this year

According to The Economist's Big Mac index, the złoty is undervalued against the dollar by approximately 43 percent. This is the most in 18 months and the second-largest discount in Europe, after the Russian ruble.

The index is based on the theory of purchasing-power parity and uses the price of the McDonald's Big Mac to compare the values of different currencies.

In Poland, the cost of the McDonald's sandwich is zł.8.80. That price translates to $2.55, which means the cost of the burger is about 43 percent lower in Poland than in the US. This in turn indicates that the złoty is undervalued by about 43 percent against the dollar.

It is expected that the Polish currency will rise in value this year.

"The Polish economy will fare better than others in the region and that should affect the złoty," Juraj Kotian, an economist at Erste Bank, told Bloomberg.

In 2011, the złoty lost approximately 14 percent against the dollar and 11 percent against the euro.

wbj.
Ant63 11 | 403
3 Jan 2012  #2
It took a fairly hefty dive in December so why the enthusiasm now.
delphiandomine 83 | 17,625
3 Jan 2012  #3
I think the reason is because it is undervalued - much of it doesn't seem to be based on market fundamentals, but rather just investors running scared. The other central European currencies took similar dives - investors were even running away from the Czech Koruna, which was always seen as being stable.

The current level is just ridiculous - if you go to Germany, you can see how utterly undervalued the zloty actually is.
Ant63 11 | 403
3 Jan 2012  #4
The current level is just ridiculous

It makes me wonder how people survive on the chronically low wages it appears the majority recieve.
delphiandomine 83 | 17,625
4 Jan 2012  #5
The problem is that much of the income goes unreported - I could tell you about countless language schools where they fiddle the books, for instance. You'll often find that people are willing to do jobs "under the table" for a fair price too - and they actually bother to turn up, too.

For instance - someone in their 50's/60's who took early retirement will often be living in a mortgage-free flat. So - let's say they get a pension of around 1000-1200zl, which isn't unrealistic. Then they work full time in a guarded car park or similar, where they get around 7-10zl an hour. That gives them about 2200zl a month. The husband will still be working, and if he has a trade, it's not unrealistic to suggest that he can be taking home 3000zl a month (with the under the table jobs too) - that gives them over 5000zl a month with only the bills to pay.

Officially, they survive on maybe 3000zl at the most a month. Unofficially, far more.

Or another example - language teachers. They might work 18 classes a week (45 minutes each) in school - but then they'll have private classes on top. A good teacher will be able to pick up an extra 20 hours, often completely "off the record" - so while their income might be as little as 1500zl a month on paper, the extras will give them a considerable amount of cash.
Wedle 16 | 496
4 Jan 2012  #6
The current level is just ridiculous

I believe the PLN will not gain in value until late march 2012, just before Euro 2012, we will see it back at 3.8-4 PLN/Euro.
Poland's central bank will be a "permanent" presence on currency markets and the country's economic fundamentals should prevent the currency from weakening, the bank's deputy chief said on Wednesday. "Fundamentals point to the fact that the zloty should not weaken. The external environment is volatile and one cannot exclude volatility on the zloty but it will be lower because I think that the situation is calming down." "I think that the zloty will remain stable at the turn of 2011 and 2012." Polish authorities have been concerned with the zloty's weakness in recent months because one third of the country's debt is denominated in foreign currencies and a weak zloty could push the overall debt level beyond a key safety level of 55 percent of gross domestic product (GDP). Polish law, which has built-in debt safety mechanisms, would force the government to launch severe spending cuts if debt topped 55 percent, which could further undermine the weakening economy and make Warsaw's battle with the budget deficit and debt even more difficult. The government expects debt to stand at 53.8 percent at the end of this year but the zloty's roughly 10 percent slide since August has already forced authorities to intervene four times since the summer to prop up the currency.
wielki pan 2 | 250
4 Jan 2012  #7
that gives them over 5000zl a month with only the bills to pay.

This may be the case of a some people, but the greater majority live off the pension, selling a few mushrooms or berries may be the only time they can earn extra money, Mr D do you read the newspapers, Poland has a unemployment to the tune of 11%, your post makes me laugh, are you telling me that things are so bad that they employ guards at car parks.

In Poland, the cost of the McDonald's sandwich is zł.8.80. That price translates to $2.55, which means the cost of the burger is about 43 percent lower in Poland than in the US. This in turn indicates that the złoty is undervalued by about 43 percent against the dollar

Other items are cheaper in Poland than the US does this mean that the Polish Zlote is overvalued? When is the price of a hamburger going to determine the price of the Zlote.
Wedle 16 | 496
4 Jan 2012  #8
are you telling me that things are so bad that they employ guards at car parks.

I can remember the guards being at car parks in 1992, They also employ guards at apartment blocks and the entrance to osiedles...
wielki pan 2 | 250
4 Jan 2012  #9
sure that is right, it seems that most Poles are employed in the security industry, crime figures must be pretty bad.
delphiandomine 83 | 17,625
4 Jan 2012  #10
This may be the case of a some people, but the greater majority live off the pension, selling a few mushrooms or berries may be the only time they can earn extra money, Mr D do you read the newspapers, Poland has a unemployment to the tune of 11%,

France has unemployment of 9.5% and climbing, Spain's employment was over 20% at one point, the list goes on...

Don't believe all the hype about "poor Babcia" - indeed, many of the genuinely poor ones are poor because they gave up working in order to look after children/grandchildren. I've read some very sad stories about how the children used their mother to look after the kids, then when the kids grew up and Babcia was getting old and sick - they abandoned her.

Strangely enough though - many of the poorest ones are the ones sitting in flats worth the most money. I have a friend who lives in an old Kamienica in Poznan in the very heart of the city. Most of her neighbours are very old, and they won't pay to renovate the kamienica - they don't have money to do so. Many of them are also very very poor - yet when she called a meeting and suggested that they should sell their places if they can't afford to renovate it, she was met with a firm "no way".

Yet - they could sell up, move to small, modern block with a lift and have more than enough money left over for the rest of their days. They won't do it - and it's the cause of some of the housing shortage in cities in Poland. The flats we're talking about are over 80sqm each - and worth over half a million zloty.

your post makes me laugh, are you telling me that things are so bad that they employ guards at car parks.

It's a hangover from the bad old days of the early 90's when anyone sensible put their car in a guarded car park. It's also very affordable - I pay 115zl a month to have a guaranteed, guarded parking space. Given that car ownership is rising fast in Poland, paying 115zl a month to be able to slot straight into a space no matter the time of day is worth it.

(plenty of unguarded car parks around, but without guaranteed spaces).

sure that is right, it seems that most Poles are employed in the security industry, crime figures must be pretty bad.

Not really, it's more because it's cheap to have. You can get a "guard" for 10zl an hour - I used to hire one occasionally for some work.

As I said, it's a hangover from the days when you wanted stuff guarded. People can afford it, so why the hell not?
wielki pan 2 | 250
7 Jan 2012  #11
I believe the PLN will not gain in value until late march 2012, just before Euro 2012, we will see it back at 3.8-4 PLN/Euro

I'm not holding my breath....the US dollar is around 3.6zl
pip 10 | 1,661
7 Jan 2012  #12
we have a guard at our osiedle. he is a retired police officer so he gets a pension as well as income from the "security" job he does. He is nice enough but as far as I can see he really just collects my deliveries- which is ok because I will pay 10,000 pln to not go to the poczta polska.
OP Harry
7 Jan 2012  #13
your post makes me laugh, are you telling me that things are so bad that they employ guards at car parks.

Why not come to Poland and have a look for yourself? Might make you look less foolish when you laugh at a reality which is well known to those of us who do actually live in Poland.
pip 10 | 1,661
7 Jan 2012  #14
osiedles have guards, office buildings, parking lots, construction sites, some stores, some bars, mall cops, apartment buildings, grocery stores--there are loads of pensioners that "double dip" and work long boring hours in order to supplement their meagre pensions-they don't do much -stand around mostly.

like Harry said- perhaps you should visit before you comment.
delphiandomine 83 | 17,625
7 Jan 2012  #15
osiedles have guards, office buildings, parking lots, construction sites, some stores, some bars, mall cops, apartment buildings, grocery stores--there are loads of pensioners that "double dip" and work long boring hours in order to supplement their meagre pensions-they don't do much -stand around mostly.

I'd be careful to clarify here - they might be "pensioners", but most of them are under normal retirement age.

This, after all, is the country that allowed police to retire after 15 years.
wielki pan 2 | 250
8 Jan 2012  #16
like Harry said- perhaps you should visit before you comment.

Now Pip no need for this, I haven't come down in the last shower nor am I wet behind the ears, I have seen these security guards at parking lots, best description given as a few men around a small table, empty vodka bottles and a old style gas burner near by, I haven't seen too may old retired types working at supermarkets or department stores mainly young rambo types... I was only trying to point out that those million of ex soldiers police cannot all be employed as security guards...Those comments may indicate the high crime rate in Poland and further indicate how inadequate the pension is when you retire!
jon357 63 | 14,122
15 May 2012  #17
The zloty's really plummeted against sterling due to the Greek crisis. My only question is whether it will get much worse before it gets better. Good news for Uk tourists....they'll get more for their pound
peterweg 36 | 2,316
15 May 2012  #18
My only question is whether it will get much worse before it gets better.

Should get worse, Greece is on the way out and that will be break up the Euro
beaware2 2 | 9
16 Jan 2016  #19
Merged: Polish zloty devaluating

During different periods of time the zloty has reached a conversion rate higher than 4.40 PLN/EURO. Yesterday went suddenly to 4.48 PLN/EURO apparently due to a law signed from the new PIS government.

Is the current conversion rate just a peak or will it stay there for the long term?
weeg
16 Jan 2016  #20
Higher risk rating due to the ratings downgrade, so a weaker currency. Government will be borrowing more money, again that weakens the currency,.
But, its all guess work.

Also, the global crash results in a 'flight to safety' out of countries like Poland which were risky even before the current governments antics. Unfortunately confidence takes many years to build and a day to destroy.

Poland is not a place for foreign investors, that is the message. Poles will just have to accept they are going to get poorer.
Jardinero 1 | 407
16 Jan 2016  #21
Strangely enough, PLN/GBP is still lower than it was before Xmass (>6.0) - wondering why that is...
delphiandomine 83 | 17,625
16 Jan 2016  #22
Just the GBP has weakened slightly. It always has been a volatile currency against others.

Poland is not a place for foreign investors, that is the message. Poles will just have to accept they are going to get poorer.

I feel significantly poorer these days at these exchange rates.
weeg
16 Jan 2016  #23
The UK has a big and persistent deficit, a large amount of debt and had its rating cut. All thing the new Polish government aspire to apparently.

I thought Poland deserved to get a higher rating, but I can now see why Poland has little credibility internationally. One election and the constitution and rule of law is gone.
polishinvestor 1 | 362
16 Jan 2016  #24
Strangely enough, PLN/GBP is still lower than it was before Xmass (>6.0) - wondering why that is...

well GBP/PLN reached a technical resistance a little above 6 right at the time the markets started to worry about the UK leaving the EU. The vote has to take place by the end of 2017 and currently the market believes it will take place early/late summer this year, so various hedging has taken place by companies not wanting to be exposed to the risk of a fall the the pound. Otherwise the exchange rate would be at highs like euro and dollar vs the zloty. If things continue in the current vein, we could see towards 5 zloty against the euro. The dollar might have problems of its own later in the year but still likely to stay above 4 zloty.
Sparks11 - | 335
17 Jan 2016  #25
Merged: How low will the Zloty go?

Polish Zloty (EUR/PLN) - Higher and higher...
It was a tough week for the Zloty. Not only the global situation on financial markets is volatile and risk aversion has increased. Also, local factors are more and more important for foreign traders. This past week, the European Commission stated it will be monitoring Poland's rule of law. This is an unprecedented move and it's the effect of the turmoil around the Constitutional Court (the ruling party, Law and Justice, appointing only their members). What is not helping are the plans of the government to increase spending and the taxes that will be imposed on banks (bank tax based on assets) and supermarkets (based on turnover).

fxstreet

Has anyone seen any predictions on how low it could go if things in the gov't don't change? 5:1, 6:1, 10:1

I suppose there is no way to even guess.
InPolska 11 | 1,821
17 Jan 2016  #26
on Thursday, at PKO 1 euro was sold 4.52 ZL...
OP Harry
17 Jan 2016  #27
I was just walking past the best kantor in Warsaw. They're selling euro at 4.51.

I suppose there is no way to even guess.

It all depends on the stupidity of the 18% regime; to be more exact, the stupidity of the Dear Leader Chairman Kaczynski.
polishinvestor 1 | 362
17 Jan 2016  #28
Before the new govrnment EUR/PLN was in a range 4.0-4.35 roughly. You could happily trade that or make deals based on that. Now its pushing towards 4.50 and weve yet to see bond investors depart, so its possible we see towards 4.7/4.75. Id be surprised if it moves above 5 as Id expect most to see through the 4 years of this government and start to put money to work at some cheap levels. Property in Poland is quite depressed on an international level, although many Poles still struggle to get a mortgage.
delphiandomine 83 | 17,625
27 Jan 2016  #29
I think we're going to see a VAT increase to 25% by the end of this year to cover the budget shortfall. I wouldn't be terribly surprised if it gets imposed as an "emergency solidarity measure" to make sure that the 500zł per child programme doesn't fall.
jon357 63 | 14,122
27 Jan 2016  #30
Looks like Moody's are going to downgrade Poland too - this will affect the government's ability to raise money and will have some odd effects on the zloty.

The bond yields are already leaping - always a sign of no confidence.


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