POLAND: Moody's Rating Review Takes Focus On Otherwise Quiet Friday

With the local calendar virtually empty today, the focus turns to a review of Poland's credit rating by Moody's. The agency currently rates Poland at A2, one notch above the grades from Fitch and S&P, which is associated with a higher risk of a downgrade. Deteriorating fiscal indicators recently prompted Fitch to revise the outlook on Poland's rating to negative, with political impasse and elevated geopolitical risk fuelling budget concerns. It should be noted that the market took Fitch's decision in stride, which was out of sync with the space it took in local new coverage, as historically low foreign participation in the local debt market, the prospect of continued NBP rate cuts and generally strong macroeconomic fundamentals shield POLGBs against potential fallout from incremental outlook changes.

• BGK write that concerns about Moody's rating outlook change should already be factored into PLN price action, while speculation on that front may prompt 10-year POLGBs to test 5.50%, albeit without crossing above that threshold.
• Crédit Agricole write that the deterioration in fiscal situation should prompt Moody's to repeat Fitch's move and change the outlook on Poland's credit rating to negative, while keeping the rating itself unchanged. In their opinion, this could create pressure on the PLN and POLGBs. They suggest that Moody's might mention the recent Russian drone incursion. The agency had previously said that its baseline scenario does not assume a NATO-Russia conflict and any direct military aggression against Poland would lead to an immediate, multi-notch rating downgrade.
• ING claim that a negative change to the outlook is 'very probable' amid a deterioration of fiscal parameters, while a rating downgrade would be a logical next step, especially that Moody's rating is a notch higher than Fitch's or S&P's. In their view, an outlook revision today and a subsequent rating downgrade should not have much impact on Polish assets. According to their estimates, a rating two notches below Moody's is already baked into FX-denominated bonds.
• Millennium Bank write that Moody's rating will probably stay unchanged at A2, but the outlook may be revised to negative, which would signal growing concern about the pace of public debt accumulation in Poland. In their view, if this happens, the zloty may depreciate and credit spreads may widen.
• Santander see a high probability of 'at least the lowering of the outlook' on Poland's rating today. They note that Moody's rating is higher than those of other agencies, hence the risk of a downgrade is also higher, despite Poland's strong macroeconomic fundamentals. They note that the assumptions that underpinned Moody's previous review are no longer valid.