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2018/06/04 / Erste Group Research

Weekly Focus Poland

We expect target rate to remain unchanged at 1.5%, as inflationary pressure remains limited. Outcome of MPC meeting should be neutral for FX and bond markets likely to remain under influence of global sentiment.

June 6: Policy rate expected to remain unchanged at 1.5%
It is broadly expected that the MPC will leave the policy rate unchanged at 1.5%. The recent CPI reading for May at 1.7% y/y surprised the market to the downside, as the market expected inflation rising to 1.9% y/y. Further, low core inflation at 0.6% y/y confirms little demand pressure. Although we have observed inflation to slightly increase over the last two months, such readings are neutral for the MPC stance. First, the rise is driven by non-core items (beyond monetary policy reach). Second, the inflation rate remains well below the target. In the coming months, we expect CPI to increase further to around 2.0% y/y and drop towards the end of the year. All in all, the MPC should maintain its dovish stance and the probability of monetary tightening in 2019 remains low, in our view.

10Y yields holding close to 3.2% despite “Italy turmoil”
Over the last week, the long end of the curve increased to 3.27%, driven
by turmoil over Italy and the spread widening to 300bp. The move was
short-lived, however. Toward the end of the week, 10Y yields came back
toward 3.2% and have been holding there, with the spread vs. Bunds
narrowing back toward 280bp. This week, the MPC meeting should not
bring any new information and will thus be market-neutral. The policy rate
should remain flat in Poland for longer, as inflationary pressure remains,
despite robust growth and a tight labor market.

Zloty remains under pressure
Over the last week, the zloty remained stable. However, macro releases
and a public holiday had a temporary impact on the EURPLN, which
increased to over 4.34 on Wednesday following the CPI and GDP
structure release on that day. By the end of the week, the zloty
appreciated and came back to levels observed at the beginning of the
week. As the macroeconomic outlook has not changed, we see recent
developments as being driven by global factors, especially as other CEE
and EM currencies weakened as well. We maintain our call that the
current weakening of zloty is temporary, and we see the EURPLN moving
towards 4.20 in the second half of the year.

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General information

AuthorErste Group Research
Product nameCEE Country Update
Topic in focusFX, Macro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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