Weekly Focus Poland | Will inflation exceed 4% y/y in April?
Flash CPI for April will be in focus this week. We see it jumping to 3.9% y/y, but upward surprise cannot be ruled out, due to low base from fuel prices. Moody’s will likely affirm Polish rating at A2 with stable outlook. ECJ ruling on FX loans could give guidance to local courts.
April 30 | Inflation to jump in April. After a surprisingly high reading in March, when CPI landed at 3.2% y/y, the inflation path has shifted further up this year. We expect inflation to further increase in April and jump to 3.9% y/y (0.5% m/m). However, an upward surprise due to the extremely low base from fuel prices and surging services prices cannot be ruled out. Easing of the restrictions and opening of the services sector will especially increase the price pressure in that part of the economy and will likely push headline CPI up. The headline figure will likely stay above the upper bound of the central bank’s target at 3.5% throughout the year and we see considerable risks to the upside to our current FY21 inflation forecast.
April 30 | Moody’s to affirm Polish rating at ‘A2’. Moody’s will be the last rating agency to review the Polish rating this spring. Earlier, Fitch and S&P confirmed the rating at ‘A-‘ with stable outlook. Moody’s sees the Polish rating one notch above other agencies, i.e. at A2 also with stable outlook, and will most likely affirm it. In last week’s interview, S&P suggested that, together with the economic recovery, pressure toward an upgrade of the Polish rating could arise later this year.
Bond market drivers | 10Y yield returned to 1.55%. Over the course of the week, the Polish 10Y yield went up by around 10bp and returned to 1.55%, while the spread against the 10Y German Bund jumped back to 180bp. The upcoming Fed meeting should not bring any material change in the monetary policy set-up. Thus, core markets should remain broadly unchanged. Last week, the MinFin held the second bond auction this month and sold papers worth PLN 7.8bn. After the April auctions, Poland has already covered around 65% of this year’s borrowing needs. The National Bank of Poland confirmed that they will hold the second QE operation this month on April 29. At the first auction, the NBP bought almost PLN 5.4bn in Treasuries and state-guaranteed papers, the most since July 2020. At the end of the week, the MinFin, NBP and BGK will announce the schedule for the next month’s operations.
FX market drivers | Zloty could weaken ahead of ECJ ruling. On April 29, the ECJ will issue its ruling on foreign currency loans in Poland. The ECJ ruling will resolve the statute of limitations on the banks’ claims for the return of capital and the possible remuneration of banks for the use of capital if a contract is declared invalid. It will most likely be in line with the existing line of rulings of the court, i.e. favorable for consumers. Given the recent weakening of the US dollar, we revised our EURPLN forecast and we see the EURPLN staying around 4.55 until the end of the year. The dovish rhetoric of the central bank, coupled with the increased inflation, in our view limits the space for a more visible appreciation of the zloty. The ECJ ruling could trigger a short-term move toward and above 4.60 vs. the EUR.