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2021/06/01 / Erste Group Research

Poland Weekly Focus | Inflation at or above 5% y/y in May?

We revised our FY21 GDP growth forecast up by 0.6pp to 4.8%. With strong economic rebound and inflation above the target, the central bank could begin policy normalization in 4Q21 and deliver a 15bp hike. Flash inflation for May is expected at 5.0% y/y. CPI data could affect zloty.

Upward revision of 2021 growth forecast | Flash 1Q21 GDP growth has been revised up by 0.3pp to -0.9% y/y (+1.1% q/q s.a.). Domestic demand turned positive for the first time since the outbreak of the pandemic last year as it increased by 1.0% y/y in the first quarter of the year. Private consumption grew by 0.2% y/y (vs. -3.2% y/y in 4Q20), while investments surprised to the upside and arrived at 1.3% y/y (vs. -15.4% y/y in 4Q20). Earlier than anticipated rebound of investment activity points to stronger than expected economic recovery this year. Thus, we revised our FY21 GDP growth forecast up by 0.6pp to 4.8% with risks still tilted to the upside.

As the Polish economy is expected to expand by around 5% this and next year, and inflation will likely stay above the upper bound of central bank’s target over that period of time, we think that the National Bank of Poland will no longer be able to stick to its loose monetary policy. In our view, the central bank could end its QE program after July inflation and growth projections are out, and deliver a 15bp hike in 4Q21 after the publication of its November forecast. We expect the NBP to deliver two additional quarter point hikes next year.

June 1 | Inflation to accelerate in May. We expect flash inflation for May to have increased further to 5.0% y/y (0.5% m/m), slightly above market expectations. After coming visibly above our and market expectations in April, we expect the CPI to go further up on the back of rising fuel and food prices. If the May reading lands above 5.0% y/y, we think that the pressure on the National Bank of Poland will increase further and some move could be expected at the July meeting, but it seems unlikely for the time being.

Bond market drivers | 10Y yield went up on the QE auction. Last week, the central bank’s QE auction was the key event for the LCY bond market as the National Bank of Poland rejected most of the bids within the tender and purchased only PLN 2bn in state-guaranteed papers of the BGK. Lower than expected volume of central bank’s purchases sparked market speculations about possible end of the QE program and subsequent monetary tightening. Despite further downward move of the core market yields, the 10Y LCY yield jumped by 10bp to 1.92% after last week’s QE tender and the spread against the 10Y German Bund widened to 210bp. The NBP announced yesterday that it plans to hold only one QE auction this month on June, 16 after holding two auctions in April and May. We think that the central bank will gradually limit its purchases and set the ground for possible interest rate hike in 4Q21.
FX market drivers | EURPLN holds below 4.50. Over the course of the week, zloty has been broadly unchanged and traded in a narrow range between 4.48-4.50 vs. EUR as US dollar remained in a sideways trend. All in all, inflation development and market expectations for monetary tightening in the region are currently the key drivers of the zloty. If flash inflation for May surprises to the upside and lands above 5.0% y/y, zloty could appreciate and move toward 4.45 vs. EUR as expectations for a rate hike will increase further. Expected monetary tightening and a 15bp rate hike in 4Q21 will be positive for the zloty, which should continue to appreciate.

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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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