Tribunal row pushes zloty to a three-year euro high and rattles Warsaw stocks

Escalation over the Constitutional Tribunal

The dispute over the Constitutional Tribunal intensified at the end of October. Media reported on Friday, 30 October, and Saturday, 31 October, that Bogdan Święczkowski had been suspended from his duties, and recordings of a demonstration and of the president pushing against judges then spread online. Politicians in the Netherlands and the United Kingdom voiced disapproval of the government's actions. The European Commission took a more measured line, noting that it falls to Polish authorities to ensure the Tribunal works in line with the constitution and the rulings of the EU Court of Justice. Witold M. Orłowski, PwC's chief economic adviser in Poland, argues that the president is usurping a veto right he does not have by refusing to take the oath from judges properly elected by the Sejm, and that the Tribunal is now effectively paralyzed.

Zloty and bond market

The zloty weakened on Monday, 2 November, as EUR/PLN broke the technical level of 4.41 and stabilized near 4.4150. The euro is trading at its highest level in three years, while the pound (above 5.3 zloty) and the Swiss franc (through 4.80 zloty) also reached three-year highs. Analysts at BM mBank noted that the 4.41 zone still acts as resistance on the chart, though the upward channel has not been invalidated. Paweł Borys, former president of the Polish Development Fund and now a partner at MCI Capital, said Polish government bond yields could rise toward 7% from 6.39% at present. BM BNP Paribas expects a possible rebound in Warsaw stocks after the sell-off on Friday, 30 October, but says political uncertainty may limit it.

“A factor limiting a rebound may, however, be the rise in political uncertainty linked to the weekend escalation of the dispute over the Constitutional Tribunal.”

Warsaw stocks react with restraint

The WIG20 fell about 0.6% in early trading on Monday, 2 November, with banks leading the decline after the session on Friday, 30 October, when the WIG closed down 2.37% and banks were again the weakest. Investors also sold CD Projekt, Modivo, PZU and KGHM, while Dino and Allegro rose. Orlen recovered after five straight falling sessions, but Orange dropped more than 8%, its third straight session of corrections after a run of strong gains. Most European indices also opened lower, though the declines were not deep. Part of the selling reflected negative moods on other stock markets and worries about the Middle East.

NBP board and the central bank risk

Bloomberg warned that the political conflict could paralyze the National Bank of Poland. It described an attempt by the 13 December coalition to bring NBP president Adam Glapiński before the State Tribunal, alongside Prime Minister Donald Tusk's blocking of nominees to the central bank's management board. Adam Lipiński's term on the board ends in November 2026, and talks with Tusk and the Chancellery of the President are ongoing, since filling seats requires consent from both the president and the prime minister. Bloomberg also suggested the European Central Bank could react to a move against the NBP president, while its president Christine Lagarde has been reluctant to take sides. The same report pointed to the zloty's weakening against the euro and rising yields on Polish ten-year bonds.

Economists look ahead

PKO BP economists expect the Monetary Policy Council (RPP) to keep interest rates unchanged in the week of 2 November, though a hawkish tone could support the zloty. They see a Democratic takeover of at least one chamber of Congress in the US midterm elections limiting further fiscal expansion and weakening the dollar, and they flag Middle East escalation after the elections as the main risk. PKO BP expects EUR/PLN to stay above 4.40 and USD/PLN between 3.91 and 3.98. Erste BP's economists wrote in their report:

“The conflict around the Tribunal adds to factors that may worry foreign investors about institutional stability in Poland.”

Millennium's economists expect Friday's escalation not to trigger a lasting market reaction, since the dispute is already priced in. The NFP jobs report due on Friday, 6 November, could shift expectations for a December Fed rate hike.