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2021/03/09 / Erste Group Research

Poland Weekly Focus | FX and bond market in focus

Market developments will be in focus this week, digesting new inflation and growth projection of National Bank of Poland, as well as latest comments from governor. Strong US dollar and rising yields are weighing on zloty, which has depreciated ahead of Supreme Court ruling on FX loans.

Inflation Report | National Bank of Poland sees inflation above target over next three years. The National Bank of Poland’s March inflation and growth projection points to increased inflation over the next three years and GDP growth of at least 4%. The NBP sees inflation with a 50% probability at 3.2% in 2021, 2.8% in 2022 and 3.2% in 2023. The inflation trajectory has been revised up compared to the November projection, due to higher than earlier expected energy prices, which are impacted by increases of fuel and CO2 emission rights prices. In our view, the March projection took any rate cuts off the table. We expect the central bank will not turn immediately hawkish and accept increased inflation and keep the target rate unchanged until the end of 2022. According to Governor Glapinski, the probability of rate hikes is close to zero and ‘markets are wrong’ pricing-in monetary tightening in 2022. The dropping core inflation toward the central bank’s target this year and next supports his call.

Bond market drivers | 10Y yield jumped to 1.6%. Market expectations for a faster recovery alongside rising concerns over the inflation development have pushed core market yields up visibly since the beginning of February. The 10Y US Treasury yield increased by around 50bp to almost 1.6%, while the 10Y German Bund went up by 20bp to around -0.3%. The Polish LCY curve followed core market developments. The curve steepened and the long end has increased by 40bp to 1.6% since the beginning of February. After last week’s switch auction, Poland has already covered around 55% of this year’s borrowing needs. The MinFin plans to hold a regular bond auction at the end of the month with supply at PLN 3-6bn.

FX market drivers | Strong US dollar weighs on zloty. Better than expected labor market data for February coupled with the passing of President Biden’s stimulus in the Senate gave a boost to the US dollar, which appreciated further and reached the highest level since November last year. The strong dollar and rising yields continue to weigh on CEE currencies and the zloty, which has been additionally negatively affected by the upcoming Supreme Court ruling regarding FX loans. Moreover, last week’s comment from Governor Glapinski that he does not expect any changes in monetary policy were negative for the zloty.

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General information

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


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