Weekly Focus Poland
MPC left policy rate flat at 1.5% and maintained dovish bias. Final CPI to be published this week – inflation increasing to 2.2% y/y in September should be confirmed. Bond and FX market sensitive to global sentiment.
October 12: Final CPI to be confirmed at 2.2% y/y The inflation rate accelerated and surprised the market to the upside, arriving at 2.2% y/y in September. The final reading should confirm the flash estimate and reveal the details behind the inflation pickup. Recently, inflation has been moving closer and closer to the target of 2.5%. Historically, the inflation rate crossing the target was associated with the beginning of a new monetary cycle. At this point, however, we would not be surprised to see the MPC tolerating positive deviation from the target for some period of time – especially as Glapinski noted that the level of interest rates in Poland remains relatively high compared to other countries in the region and Europe. Unless the inflation rate is expected to move towards the upper bound of the target, i.e. 3.5% in the medium term, monetary tightening seems an unlikely scenario. For the time being, we sustain our call for the first rate hike in 4Q18.
Bond market regains Friday’s loses After the US labor market data, the long end of the curve shifted up, following core markets, and 10Y yields went above 3.50%. On Monday, the bond market regained Friday’s losses, as yields dropped a few basis points. This week, domestic releases will be neutral for the bond market and global sentiment is likely to shift the curve, especially as the minutes from the FOMC meeting will be published.
Zloty ended week above 4.30 vs euro The EURPLN moved to 4.31 in reaction to the US labor market data on Friday. At the beginning of the weak, the zloty remained relatively weak, at 4.30 vs. the EUR. The quite empty macroeconomic calendar makes the zloty more sensitive to global sentiment and it is likely to be influenced by moves on the EURUSD pair.