EUR/PLN to converge back to the 4.30 pre-pandemic level after large Polish rate hike – TDS

The Polish central bank surprised markets by hiking rates. The zloty strengthened on the back of the decision and economists at TD Securities expect to see a bit more PLN strength. 

The NBP capitulates to inflation pressure

“The NBP surprised us and the markets by delivering a large and very unexpected 40bps hike.”

“The NBP continued to argue that inflation is to a great extent stemming ‘from factors beyond the control of domestic monetary policy’. It has, nonetheless, decided to reduce inflation risks in the medium term by raising the base rate immediately. On the inflation front, it is looking increasingly likely that October CPI will come out at around 6.0% YoY and then edge towards 7.0% YoY in Q1 2022 as a result of the ongoing energy-price shock.”

“Additionally, the NBP purged the press statement of any references to QE, which is a further hawkish signal.”

Our long-term zloty forecast is that EUR/PLN will converge back to the pre-pandemic level of 4.3. The shift in monetary policy adds near-term support for the zloty and will facilitate faster EUR/PLN convergence towards 4.3 in 2022.”

“In the upcoming meetings, we think that the NBP will decide to move rates in more orthodox steps of 25bps.”