News & Analysis

Last week’s CPI release from Poland already warmed markets up to the idea that the National Bank of Poland would hike interest rates by at least another 50bps in today’s meeting.

The NBP’s surprise decision to follow up with a 100bp hike to bring the base rate to 4.5% in order to get a grip on inflation strengthened momentum on the zloty, with EURPLN breaking through yesterday’s lows to hit levels last seen late February before the substantial rise in geopolitical risk premia.

EURPLN hits February levels after 100bp rate hike from NBP

Today’s hike was twice the size of what the median of forecasts submitted to Bloomberg had foreseen, while it even came in 25bp above the most hawkish submission.

The NBP’s decision to tighten policy this aggressively sends a clear signal to markets that the central bank is prioritising getting inflation under control, even if this translates to a hit to economic growth. The latest inflation data of 3.2% MoM and 10.9% YoY likely gave a strong incentive for today’s decision, especially as Polish inflation is set to rise further in the months ahead as well.

The Polish zloty hasn’t completely pared all of its losses against the euro and US dollar since Russia’s invasion of Ukraine, as the ongoing war, lack of progress in peace talks and more sanctions on Russia following Russian war crimes have taken a toll on European currencies as a whole.

In that regard, while today’s rate hike is substantial, even for the NBP, it makes sense the central bank wants to prevent another meltdown in the zloty by getting ahead of markets and surprising with a larger-than-expected rate hike. All of the focus will remain on Russia-Ukraine for the time being, however, Poland’s core inflation reading which is released on April 19th will also be watched as this will paint a picture of how serious the food and energy inflation passthrough to other categories has been so far. For now, however, the focus will be on NBP Governor Glapinski who will address today’s decision in a press conference tomorrow.

Front-end polish yields rise to fresh highs as NBP strikes with a mammoth rate hike


Ima Sammani, FX Market Analyst


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