Governance concerns may affect Poland's credit rating

Significance

Moody's may cut Poland's credit rating because of the government's controversial changes to the constitutional court, the agency has warned. The European Commission continues to put pressure on the right-wing Law and Justice (PiS) party to repeal legislation that changes the court's composition and working practices, triggering protests and prompting accusations of anti-democratic behaviour. However, Poland's financial markets have been rallying, even as the stand-off has intensified. Signs that the government favours a less aggressive restructuring of Swiss franc mortgage loans are also buoying sentiment.

Impacts

• Sentiment towards EMs will still be fragile, thanks to significant uncertainties.
• Uncertainties centre on the oil price outlook, US monetary policy and, crucially, central banks' ability to stabilise markets.
• Concerns about a UK exit from the EU could begin to weigh on CE currencies if markets anticipate higher risk of an 'out' vote on June 23.