News & analysis

The National Bank of Poland (NBP) kept a wait-and-see approach today and left its key policy rate unchanged at 0.10% while remaining tolerant of the above-target inflation.

The Polish zloty barely reacted to the news as most market participants were expecting no policy changes, but the NBP’s comment on FX intervention in the press statement may be a trigger for zloty volatility further down the line.


Zloty strengthens vs EUR and USD in build-up to NBP event but remains unimpressed by decision

The NBP maintained the same dovish message in today’s press statement as it has over the past month. Inflation forecasts were revised upwards in March, but the central bank seems committed to keeping policy accommodative to facilitate a smooth recovery and does not flinch from above-target inflation. In the statement, the NBP discussed the increase in inflation was primarily driven by a further rise in fuel prices stemming from growing oil prices in international markets. Headline inflation is expected to average 3.5% in Q1 and 2.9% in Q2, and remain within the 2.5% to 3.5% until at least the end of 2022 while the target is set at 2.5%. Together with the expected additional increases in waste disposal charges, base effects related to fuel prices will likely translate into elevated inflation figures in the coming months, but the NBP has made it clear it will not back away from its current policy.

The NBP also stated it may intervene in FX markets going forward.

Previously, the central bank intervened in currency markets when EURPLN was trading around the 4.45 level in order to slow down their domestic currency. With the zloty weakening to over-decade highs in March, however, it seems hard to justify intervention to further weaken the zloty, meaning the comment on the FX intervention may just be another form of verbal intervention until EURPLN starts to test those levels again before the recovery phase is well underway.

The interventions would lose their necessity as soon as vaccinations progress far enough to gradually reopen the economy. Should any verbal intervention therefore turn to actual intervention by the NBP, we expect it to be short-lived as the central bank will show increased tolerance towards zloty strength throughout the reopening phase.

The monetary policy decision will be further outlined during Friday’s online press conference at 14:00 BST, but the communications from the NBP are unlikely to change much in the press conference and will likely continue to suggest that monetary policy will remain loose and that an increase in the NBP’s QE programme or further FX intervention remains on the cards.


Author: Ima Sammani, Senior FX Market Analyst



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