NBP to stay on hold for long

When the Polish central bank’s Monetary Policy Council meets next week, it is very likely that it will decide to keep the central bank’s key policy rate unchanged at 2.5%. This is also the consensus expectation.

Polish growth remains weak and inflation is well below the central bank’s 2.5% target so it would be reasonable to assume that further monetary easing would be forthcoming. However, it is equally clear that the NBP thinks it has done enough and the latest signals from NBP governor Marek Belka indicate that the markets should not expect more rate cuts any time soon. While we think monetary easing is warranted in Poland, we also think that the NBP is not about to change its mind on this issue. As a result, we believe it will keep rates unchanged in the coming 12 months, but risks are on the downside.

EM Bond Snapshot: Better global environment for EM but challenges remain

So far, this has not been a good year for emerging market assets. Increased political risks arising from unrest and war in Syria and Egypt, demonstrations in Brazil and Turkey, growth worries in China and fears of Federal Reserve tapering have all made for a very unpleasant cocktail.

However, it now looks as though some of the clouds are disappearing. First, the sell-off in emerging markets – on both the fixed income and the FX side – means that valuations across the emerging market universe have become less challenging. Second, the Chinese growth worries are easing as recent Chinese data releases have indicated a growth stabilisation in China. Third, the risk of a US military attack on Syria seems to have decreased, as have worries about the situation in Egypt. Finally, it is quite supportive for the emerging markets that the Federal Reserve has postponed tapering. All in all, it seems as though the appetite for emerging market risk has been coming back recently.