EURPLN has moved up in low volatility but we could be about to see an increase in volatility and the NBP disappoints the market in terms of rate hikes and the economy slows up.
The National Bank of Poland’s Lombard rate is presently at 6.50 percent, the rediscount rate at 6.05 percent, at 6.10 percent. In May the NBP governor A. Glapiński noted that the end of monetary tightening was drawing near and rate cuts could come in 2023.
National Bank of Poland – The Interest Rate Outlook
“It cannot be ruled out that (the Monetary Policy Council, RPP – PAP) will start cutting interest rates in the last quarter of 2023,” Adam Glapiński told reporters on Thursday and added “we expect inflation to stabilize in summer, and later, to start slowly going down. However, with CPI up at 15.6%, the MPC could look to deliver a 75bp rate hike, this month or maybe even a larger increase according to market expectations but this quote may give clues to a smaller rise:
“Unfortunately, the war in Ukraine, Russia’s gas policy conducted before the war, the EU’s energy policy and, above all, a permanent-growth of electricity prices have increased prices of many raw materials,” He noted that this was the main cause for high inflation. As it’s a supply shock raising rates aggressively may have limited impact.
Polish Economy Is Slowing Up
We are seeing signs of a slow up in the economy June purchasing managers index for manufacturing fell to 44.4 from 48.5 in May. Which “Confirms that the run of growth in the industry since mid-2020 is “well and truly over,” (Paul Smith, Economics Director at S&P Global Market Intelligence.)
He added price indexes: “Are finally showing clear signs that inflationary pressures are easing. However, these are most likely being driven by demand contractions and it remains to be seen how far the downturn will have to be to finally bring us back to a semblance of demand-supply equilibrium.”
This is a good point”(There are) more signs of economic slowdown in Poland and abroad and at the same time we remember that… the governor of the NBP said the MPC (Monetary Policy Council) was nearing the end of the cycle,” said BOS economist Aleksandra Swiatkowska, who is looking for a 50bps move to the upside.
Interest rate Forecasts and likely Market Reaction
In terms of banks, 15 are looking for a 75-basis-point hike, 4 see a 50 bps points move, and three forecast a full 100 bps hike: In our a 100 bps move will see a small move up in the zloty a 75bps move will have little impact, a 50 bps hike will see a sell-off.
The key levels of support and resistance to watch are on the chart below – We see any pullbacks being held by the support and a move back up to test March highs.