Polish central bank delivered 50 bps rate cut

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Polish central bank delivered 50 bps rate cut

CNB’s Singer warns of speculations on CZK appreciation

The Polish zloty hit a 7-½ month high against the euro yesterday even though the Polish central bank (NBP) surprised markets by cutting its reference rate by 50 basis points (instead of expected 25 bps). The clue to zloty’s reaction lies in the official press release and comments of NBP’s president Marek Belka at the subsequent press conference.

The press release explicitly states that the “decision to lower the interest rates at the current meeting concludes the monetary easing cycle”. Moreover, Mr. Belka’s comments were also unusually clear; he said that he didn’t “think that one could talk today about any realistic scenario that could violate the guidance that was included in the statement”. He also said that a solid majority of voters supported the cut and that the members of the Council have also taken into account the expected outcome of today’s ECB meeting.

Despite the bold rate cut announced yesterday, we think that additional monetary easing in quarters to come cannot be ruled out entirely. The impact of ECB’s quantitative easing on economic conditions across Europe is hard to predict and NBP’s strong commitment to keep real interest rates high (the NBP expects this year’s inflation to remain negative) may lure investors into Polish assets. The latter factor could explain the appreciation of the zloty which continues this morning. And zloty´s appreciating may, in turn, further depress (already low) inflation expectations…

Regarding news, today’s comments of CNB governor Singer, who warned against speculations on sharp appreciation of the koruna, have so far had no significant impact on the koruna. Singer said that - unlike the Swiss central bank - the Czech National Bank had never excluded possibility of repeated weakening of the CZK, which certainly poses risk for investors on the wrong side of the market.