Poland Weekly Focus | Central bank to keep rates stable, but…
|... situation recently became tricky, with surging inflation and markets pricing in rate cuts due to spread of COVID-19 in Europe. Markets to follow global news regarding virus developments. Further drops of yields and FRAs cannot be ruled out.
March 4 | Central bank to keep rates stable. We expect the National Bank of Poland to keep rates unchanged at 1.5%. In light of the COVID-19 outbreak and increasing market uncertainty, inflation development and rate expectations decoupled from each other. Inflation surged to 4.4% y/y in January and is expected to remain above the upper bound of the inflation target for the most of 2020. Polish forward rates, however, dropped strongly in recent days, reflecting the rising uncertainty and pricing in expectations for a 50bp cut within a one-year horizon.
Bond market drivers | Market in panic due to COVID-19. Global markets turned into full panic mode on the back of news surrounding the spread of COVID-19 outside of China. Poland followed core market development and recorded substantial drops along the whole yield curve. Over the course of the week, the 2Y yield dropped by 10bp, 5Y by almost 15bp, while the 10Y LCY yield decreased by 20bp. The latter bottomed out on Friday morning at 1.65%, which is the lowest level in history. As a result, the spread over 10Y German Bund narrowed to 240bp.
FX market drivers | EURPLN follows market fears. The outflow of investors from more risky assets took its toll on the zloty and it depreciated to above 4.32 vs. EUR. We think that the FX market will focus on the COVID-19 news and we could see some further weakening of the zloty this week.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.