Yesterday’s press conference of the National Bank of Poland brought another dovish surprise. Although Governor Adam Glapinski mentioned hawkish risks for inflation during the press conference, the conclusion brought a dovish twist. Glapinski stated that this is not the beginning of a cutting cycle but did not rule out another cut in September, depending on the data. At the same time, he mentioned 3% as a terminal rate if inflation returns to the inflation target of 2.5%.
However, our economists are optimistic that inflation will be on target from July. The rate should thus be heading towards 3.5% according to our economists, but given the governor’s rhetoric, the range of 3.00-3.50% can be kept in mind as the next direction for market pricing. The market thus has more room to receive rates and will likely shift market pricing to this level, especially after the July inflation.
Poland’s zloty rallied during the first half of the day and at the beginning of the press conference. Although it lost some of its gains after the dovish shift in tone, it still held onto significant gains by the end of the day. However, we remain bearish, and the prospect of more cuts should keep pressure on the PLN. The rate differential still points more towards levels around 4.290 and at the same time, we can expect the market to price in even more cuts, boosting the bearish case for the PLN.
Frantisek Taborsky