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After having cut interest rates by a total of 140 basis points between March and May, the National Bank of Poland kept its benchmark rate unchanged yesterday at 0.10%, in line with the forecasts of all economists surveyed by Bloomberg.

The central bank repeated that the economic downturn from the pandemic poses a medium-term disinflationary risk to the Polish economy and that the NBP will continue to purchase sovereign bonds. The current asset purchases delivered equal PLN 94bn ($24bn) which amounts to roughly 4% of Poland’s GDP, making it one of the largest QE programmes among emerging markets. For perspective, the Hungarian central bank who purchases government bonds on a weekly basis has so far delivered HUF 600bn ($2bn).

In the press release following the meeting, NBP Governor Adam Glapiński acknowledged the massive economic downturn from the pandemic but noted that sentiment has been improving on the back of reopening economies, both domestically and internationally, and stated that the economic recovery should be supported by significant fiscal and monetary policy easing. The NBP also wrote that “the pace of economic recovery can also be limited by the lack of a clear adjustment of the zloty exchange rate to the global shock caused by the pandemic and the loosening of monetary policy”, signalling that a weaker currency may be preferable. Tuesday’s announcement was once again not followed by a press event, something that had markets raising eyebrows before as the latest press conferences have not been replaced by online discussions.

EURPLN has ripped over a percentage point higher as the zloty weakened following the announcement while its Hungarian and Czech neighbours advanced.

As both the policy rate and QE announcement did not come as a surprise to markets, the responding price action of the zloty may have related more to the wording of the press release, as it is not common for the NBP to refer to the strength of the zloty in its statements.

The comment came after the zloty had been trading in the green against the USD and the euro for most of last month following the aggressive rate cut in May. The zloty’s rally seemed to have run out of steam in the past couple of weeks. The main narrative that has been weighing on the currency recently is political uncertainty as Poland is in the middle of its presidential election campaign. Earlier, Poland announced a delay in the presidential election that was scheduled to take place in May. The Government cited concerns over democracy and transparency problems that could arise when elections would be held during the peak of Covid-19, as voting was scheduled to take place via the Government’s mail-in ballot plan which was criticised for fraud. The elections are now scheduled to take place on Sunday June 28, and votes will be conducted via mail only.

Unlike its eastern European peers, the NBP has not set a target size for its asset purchases…

But, the prospect of the QE programme extending into 2021 is likely given that this is in line with many other central banks and hard data from Poland repeatedly pointed to the large economic hit from the virus shock. GDP showed a contraction of 1.2% QoQ in Q1, whereas April’s industrial production and retail sales plunged by 25% YoY and 23% YoY respectively. The NBP has not released detailed economic projections on Tuesday but these are scheduled to be published at the next meeting, set for July 8. With rates remaining at the current low levels and the NBP continuing to purchase government bonds, this may continue to bode well for the zloty, although short term downside risks of the presidential elections remain elevated.


Polish zloty weakened against the euro after NBP announcement


Polish zloty back on the offensive against the euro after aggressive rate cut in May led to a rally



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