KBC Market Research Desk
KBC Bank
The Polish zloty pared some previous gains on Friday but still strengthened by about 0.9% against the common currency last week. An unusually strong commitment of the Polish central bank to keep official interest rates stable in combination with ECB’s QE are, in our view, the key factors behind the recent strengthening of the zloty; since mid January, the currency has already strengthened by about 5%.
Regarding a possible break of the commitment, Elzbieta Chojna-Duch, ranking among the most dovish members of the Monetary Policy Council (MPC) in the past, said on Friday that “interest rates are not always right instrument to counter market turbulence”. There have obviously been members of the Monetary policy council, who remain reserved towards additional easing of monetary policy, primarily because of suspected further fall of interest rates. Chojna-Duch’s comments thus suggest that the MPC could, in case of urgency, prefer direct FX interventions to slashing rates below 1.5 %. With all that said, albeit we expect interest rates to remain stable throughout the rest of this year, we can hardly exclude possibility of an interest rates cut entirely.
Regarding the week ahead, a release of March PMI data on Wednesday should be the regional eye-catcher. Apart from that, ongoing negotiations between the EU and Greece may weigh on market sentiment and thus slightly limit room for further strengthening of CE currencies. In case of the koruna, the dovish outcome of Thursday’s CNB meeting may prevent the currency from testing the EUR/CZK 27.0 level.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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