News & analysis

The Polish zloty started Q4 with a bang and is currently trading at its strongest level in more than a week against the euro. While other Eastern European currencies like the Czech krona and the Hungarian forint are also performing well amid general EM currency gains this week, the zloty got an additional boost after a Polish central banker signalled that having near-zero rates after 2020 would be harmful to the Polish economy.

Monetary Policy Council member Eugeniusz Gatnar used Hungary as an example to show that ultra-low interest rates in emerging market economies can hurt the economy by pushing up inflation.

NBP Governor Adam Glapinski seemed less concerned about a jump in inflation and called the current rate of 0.1% “fair” while vowing to keep it unchanged for as long as the Polish economy needs support.

September’s inflation figures defied the governor’s view however, as the year-on-year inflation accelerated for the first time since July. Prices increased by 3.2% YoY in September, compared to the 3%  median forecast submitted to Bloomberg. The figure exceeded the central bank’s goal for inflation, which was set at 2.5%, but the zloty seemed unimpressed by today’s data and continued to strengthen against the euro. In the bigger picture, although EM assets have rallied in recent sessions, risk appetite remains fragile and uncertainty surrounding the global outlook is high. The US election is another major risk event. With the Polish election out of the way, however, the political risks in Poland have subsided, and monetary policy is likely to remain a larger driver of the currency going forward as the nation slowly aims to recover from the pandemic.


Polish zloty joins the EM rally and strengthens against the euro despite higher-than-expected inflation


Author: Ima Sammani, FX Market Analyst



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