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2021/07/13 / Erste Group Research

Poland Weekly Focus | MPC remains dovish amid elevated inflation

Central bank projection points to strong economic growth and increased inflation until 2023. Tightening could be considered if: growth is sustained amid next pandemic wave, inflation stays above 3.5% and is demand driven. Thus, first hike likely to be delayed until 1Q22.

NBP likely to remain on hold until 1Q22 | After keeping interest rates unchanged at last week’s MPC meeting, the National Bank of Poland presented its detailed inflation and growth projection. In line with expectations, the inflation and growth forecasts for this year have been revised visibly upwards with slight adjustments beyond 2021. The NBP expects inflation to ease next year, as some one-off factors (commodity and administered price increases) as well as the base effect should drag inflation down. In 2023, CPI will begin to rise again, driven by demand-side pressures related to the economic rebound.

Although the July projection points to strong economic growth over the forecast horizon and inflation remaining close to the upper bound of the target, the NBP is to remain hesitant and delay policy normalization. During Friday’s press conference, Governor Glapinski named three conditions under which MPC could began to discuss monetary tightening: the next wave of the pandemic will not affect growth, inflation stays above 3.5% y/y and will be demand driven accompanied by strong labor market.

Bond market drivers | 10Y yield returned below 1.7%. Over the course of the week, the long end of the LCY curve returned below the 1.7% mark, following the development of the 10Y German Bund. As a result, the spread against the 10Y Bund widened marginally towards 200bp. At the first auction in 3Q21, the MinFin bought back papers worth PLN 5.2bn and sold bonds worth PLN 5.5bn. Next week, the regular bond auction is scheduled with supply of PLN 4-8bn. This week, the NBP will hold a QE tender and state development bank BGK plans to tap the market with up to PLN 1bn in 7Y and 10Y papers.

FX market drivers | Zloty locked above 4.50 vs. EUR. Growing market concerns over the impact of the Delta variant of the coronavirus on economic recovery weighed on CEE currencies. After briefly breaking the 4.50 margin vs. the EUR, the zloty weakened and moved toward 4.55 vs. the EUR by the end of the week. The MPC meeting did not affect the currency, as stability was broadly expected.

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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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