Interest rate market
The year 2023 was characterised by high volatility, but eventually brought a marked decline in yields on Polish government bonds. At the end of 2023, the yields on 2-, 5- and 10-year bonds were 5.05%, 5.03%, 5.2% respectively. This was mainly due to a decline in inflation by more than 10 percentage points from 16.6% in December 2022 to 6.2% at the end of 2023. Declining inflationary pressure, combined with economic stagnation driven by weak consumption, permitted the MPC to cut interest rates by a total of one percentage point. We have also seen declines in bond yields in the underlying markets, although the major central banks – the ECB and the Fed – have not yet cut interest rates, and are only hinting at the onset of monetary easing cycles.
Currency market
The złoty strengthened in 2023 against the euro by PLN 0.34 (7%) to PLN 4.34/EUR, and against the US dollar by PLN 0.44 (10%) to PLN 3.97/USD. This happened in spite of the weak economic situation and interest rate cuts made by the MPC. It should be noted that the structure of GDP – consumer recession combined with good foreign trade performance and solid investments – was supportive of the złoty. Towards the end of the year, after the parliamentary elections, the chances of unblocking European funds related to the National Recovery Plan increased, which gave a positive boost to the złoty. Developing country currencies were also supported by the weakening of the US dollar on international markets, which encouraged financial flows to emerging markets.
Stock market
The year 2023 saw high returns for those investing in stocks, including stocks listed on the Warsaw Stock Exchange. The WIG index climbed by more than 36% reaching the highest level in its history. This situation is partly attributable to the overly pessimistic attitude of investors worried about the economic impact of the war in Ukraine and interest rate rises, which had triggered an overly deep discounting of equities in the previous year. The economy was stagnant for most of the year, but the economic climate turned out better than expected, as did corporate earnings. The upturn was also driven by the two interest rate cuts by the MPC (September, October) and an increase in the chances of European funds from the National Recovery Plan being unlocked.