Poland's economy minister said on May 9 the government will seek a compromise on a scheme to convert Swiss franc loans. The official also insisted Warsaw has not received any information about an imminent rating cut. The zloty gained in reaction.

Polish authorities have been making a concerted effort to soothe market sentiment ahead of a review of the sovereign rating by Moody’s Investors Service scheduled for May 13. Speculation on May 5 that the government was aware that a downgrade is on the way sent the Polish currency plummeting and bond yields spiking.

Officials have spent the time since clearly trying to calm the mood. President Andrzej Duda, whose office is drawing up the bill on forex loans, pledged that the scheme will not upset the financial system. The presidential office was already forced to pull its first draft of the bill after the central bank and financial regulator both blasted it for piling too much pain on the banks.

In another apparent attempt to calm the market, Economy Minister Mateusz Morawiecki told reporters the government will seek a compromise on the issue. The official also insisted that the government has no information that a ratings cut is imminent.

Moody's traditionally places more emphasis on the banking sector than its peers. The zloty gained the most in emerging markets and bonds rose, according to Bloomberg.

Analysts are finding it a tough call, although consensus appears to suggest a full-scale downgrade is less likely than a cut to the outlook. “We expect Moody’s to keep the sovereign rating at A2 - two notches above S&P and one above Fitch - but to change the outlook to negative from stable due to political uncertainty and a planned and so-far-unfunded expansion of fiscal policy,” SEB’s analysts write.

There are plenty of issues for Moody's to mull on top of the risk to the banks. The agency already warned earlier this year that it is watching the country's loosening fiscal stance carefully. Meanwhile, it has also said the independence of institutions is another central issue.

Poland has been on the watch list for international investors since the populist Law and Justice (PiS) took power in November. In mid-January, PiS’ policies – especially the effective paralysis of the Constitutional Tribunal (TK) as well as plans to relax fiscal discipline – led Standard & Poor’s to execute a surprise rating cut, weakening the Polish zloty and pushing up bond yields.

With the focus now on Moody's, Warsaw is clearly wary. Political tension hit a new high last week as Finance Minister Pawel Szalamacha wrote to the head of the TK asking him not to speak about the conflict until after the rating review. On May 7, an estimated 240,000 people marched through Warsaw in protest.