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2021/03/29 / Erste Group Research

Poland Weekly Focus | Back to an upward inflation trend

March flash inflation to land at 2.7% y/y and return above the central bank’s target. Manufacturing PMI to bring a strong print in March. MinFin to announce quarterly bond supply and auction calendar. Zloty to remain under pressure.

March 31 | Inflation to return above central bank’s target in March. We expect flash inflation for March to land at 2.7% y/y, slightly below market expectations at 2.8% y/y. After bottoming out in February at 2.4% y/y due to the high base, we expect inflation to move towards 3% y/y and fluctuate within the upper bound of the central bank’s inflation target throughout the year. The increase of electricity prices as well as rising waste disposal costs remain the key inflation drivers. Furthermore, the base effect from oil prices will additionally push headline CPI up in Apr-May 2021. Despite increased price pressures, we do not expect the central bank to react and to adjust the monetary policy toolkit.

April 1 | Solid manufacturing PMI in March. Polish manufacturing PMI for March is expected to follow strong prints observed in Eurozone and Germany and continue to increase. Markets expect Polish PMI to land at 55.2 (up from 53.4 in the previous month). In Germany, flash manufacturing PMI landed at 66.6, which is the record-high level since data collection began in April 1996.

Bond market drivers | 10Y yield holds below 1.5%. Over the course of the week, the 10Y Polish yield moved in a narrow range between 1.45-1.5%, while the 10Y German Bund corrected to -0.36% by the end of the week. The spread over the 10Y Bund was broadly unchanged close to 180bp. Last week, MinFin sold papers worth PLN 6bn at a regular auction. According to MinFin, 58% of this year’s gross borrowing needs have already been covered. This week, MinFin will announce the quarterly bond supply and auction calendar, while NBP will present the schedule of their market operations. Separately, the development bank BGK will offer bonds worth at least PLN 1bn at the auction on March, 31.

FX market drivers | Zloty the weakest since 1Q04. Strengthening of the US dollar coupled with local factors, including the central bank’s commitment to loose monetary policy, rising inflationary pressures as well as deteriorating pandemic situation and unresolved issue of FX mortgages continue to weigh on the zloty. On Monday, zloty depreciated sharply and EURPLN moved above 4.66, that is the weakest level since 1Q04. Given recent weakening bias of the zloty and persisting negative factors, we revised our exchange rate forecast and expect the EURPLN to remain above 4.60 until the end of the year. This week, PLN will likely remain under negative pressure from the US dollar, that will likely benefit from local macro releases.

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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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