News & Analysis

The Polish central bank (NBP) lived up to market expectations today and left interest rates unchanged while it will continue to purchase government securities and government-guaranteed debt securities in the secondary market as part of the structural open market operations (QE). 

The central bank also stated it may possibly intervene in FX markets, according to the policy statement, as the latest bout of zloty strength is seen as blunting the impact of QE and fiscal measures. The zloty’s reaction was muted, however, and the market’s focus quickly turned back to headlines around risk sentiment and other key events.


EURPLN remains in weekly range-bound after NBP announces unchanged rates

While today’s policy statement did not contain huge surprises, the mention of potential FX interventions will not go unnoticed by markets.

With the zloty trading 0.8-2% lower against the euro compared with levels that previously invited the NBP to intervene, the explicit reference to further FX intervention may invoke a level of support in EURPLN around the 4.5 and 4.45 levels – with markets knowing that the central bank sold the zloty at these levels only recently.  The National Bank of Poland has voiced concerns about the zloty’s advance before and also recently confirmed to have intervened in currency markets last month in order to boost the impact of policy loosening on the economy. The NBP also signaled earlier that a rate cut may be in the cards this quarter, but as we mentioned earlier in our Week Ahead, rate cuts at this stage may do more harm than good to the Polish economy considering the interest rate corrected for inflation is well below zero.

Chances for a rate cut at the March meeting are more likely, but this would still depend on the domestic virus situation.

For now, the daily case count has been well below the last peak seen in November, but time will tell whether this can be kept up.


Author: Ima Sammani, FX Market Analyst



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