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imageBUDAPEST/WARSAW: The zloty approached 6-week highs against the euro on Wednesday as expectations receded for strong monetary easing next year.

The Law and Justice Party (PiS) which won elections in October and formed a government last month has pledged lower central bank interest rates, a programme of cheap loans similar to the European Central Bank's LTRO, and a new tax on banks.

PiS will be in the position to revamp the Polish central bank's Monetary Policy Council soon as the mandate of most rate setters will end next year.

A PiS candidate, Grazyna Ancyparowicz, said on Wednesday that it was safer not to launch a Polish LTRO programme for now and that any bank tax risked hurting lending to small and medium-size firms.

The comments made by candidates so far show that the politically driven argument for lower interest rates seems to be weakening, Raiffeisen bank analyst Dorota Strauch said in a note.

"Given that the increased (government) expenditures might boost growth next year, additional easing also on the monetary side would be an inappropriate policy mix," she added.

The zloty firmed 0.35 percent to 4.239 against the euro by 0902 GMT, a touch away six-week highs set at 4.233 on Tuesday, while most Central European currencies changed little.

The zloty rebounded from a fall to 4.285 late in the previous session after Fitch warned that Poland's revised 2016 budget underpinned concerns that the new government would partly relax the fiscal stance.

"The recent confrontation between the government and the constitutional tribunal that led to street protests, suggest that the risks of a more aggressively populist policy stance are rising," Fitch said.

Despite the tension, the lower chamber of the Polish parliament passed a constitutional law amendment late on Tuesday.

Polish deputy finance minister Konrad Raczkowski said late on Tuesday that he would back exempting government bonds from the projected asset tax on banks and insurers, provided that annual tax rate will rise to 0.44 percent from 0.39 percent in the current proposal.

One Warsaw-based dealer said that change would be "very positive" to bonds at the short end of the yield curve and this was no priced in yet.

The yield on 2-year bonds dropped 2 basis points to 1.78 percent.

Copyright Reuters, 2015

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