Poland Weekly Focus | Central bank to keep rates unchanged
National Bank of Poland to keep key rate unchanged at 0.1%. Press conference of Governor Glapinski following MPC meeting could shed more light on monetary policy outlook. Zloty corrected at beginning of week after dovish comments from governor.
September 8 | National Bank of Poland to remain on hold. We expect the National Bank of Poland to keep the target rate unchanged at 0.1% at this week’s meeting. Although inflation surged to a two-decade high in August (at 5.4% y/y) and will likely stay outside the central bank’s tolerance band throughout 1H22, the central bank remains hesitant to start policy normalization. In the latest interview, Governor Glapinski said that, given the nature of the current shock and factors behind the recent surge in inflation as well as uncertainty about the pandemic and growth outlook , ‘tightening of monetary policy would be very risky’. All in all, we continue to think that the NBP will deliver a 15bp hike in November following the release of the new inflation and growth projection. However, a postponement of the first hike into 1Q22 cannot be ruled out, given recent softer real economy data from Poland as well as from the major economies.
Bond market drivers | 10Y yield visibly up. Over the course of the week, the long end of the Polish LCY curve went visibly up, as it increased by 15bp to 1.95% on the back of both local and core market developments. The surprisingly high inflation print for August and upward revision of 2Q21 GDP growth coupled with yield increases in Germany affected the Polish curve. The German 10Y Bund went up by 6bp to -0.36% and as result the spread vs. 10Y Bund widened to 235bp. This week, the ECB and NBP rate-setting meetings will be in focus. While the NBP meeting should not bring any changes in the monetary policy set up, the press conference of Governor Glapinski (likely on Friday) could shed more light on the outlook.
FX market drivers | Zloty strengthened. CEE currencies benefited from last week’s local macro releases and weaker US dollar. After two months of underperformance compared to local peers, the Polish zloty appreciated visibly and gained 1.2% vs. the EUR over the week. The zloty was supported by a surprisingly high inflation print for August (5.4% y/y), which puts the National Bank of Poland into an uncomfortable position, given its pledge to maintain stable interest rates. The ECB Governing Council will meet this week and decide on the level of asset purchases under the PEPP program. A reduction in monthly purchases is broadly expected, so any market reaction should be limited.