Poland: MPC to remain on hold

After rate cut in March, we expect MPC to keep target rate unchanged at 1.0%. Further easing is likely this year. Unemployment rate for March should be released by Ministry of Family, Labor and Social Policy. Markets continue to watch COVID-19 developments.

 

Watch this week

April 8 – Monetary policy to remain stable

After an emergency 50bp cut delivered on March 17, we expect the central bank to remain on hold and keep the policy rate stable at 1.0%. We believe that the central bank is likely to pause with further easing until the new growth projection is available (due in July). It will be, however, important to see how the expectations of the MPC regarding the economic outlook have changed to determine the likelihood of further easing. If recession is anticipated sooner than July, we cannot exclude the central bank taking action prior to July. The central bank might discuss the details of the QE program during the press conference, as no information on duration or size is available.

April 6-10 – Unemployment rate for March

In the upcoming week, the Ministry of Family, Labor and Social Policy will release the unemployment data for March. We expect the unemployment rate to sharply increase to above 7% due to the lockdown of the economy.

April 10 – S&P to review Polish rating

Last week, Fitch confirmed the sovereign rating at ‘A-' with stable outlook and outlined possible risks related to the spread of COVID-19. Therefore, we expect S&P to follow with a similar decision and to confirm the Polish rating at ‘A-' with stable outlook.

 

Last week's highlights

• Discussion over whether to hold presidential elections on May 10 continues. Parliament scheduled to vote on postal vote proposal on Monday.

• Poland backed EU plan on issuing coronavirus bonds.

• Manufacturing PMI for March dropped to 42.4 compared to 48.2 in previous month.

 

Market developments

Bond market drivers – Yields remain broadly unchanged

Over the course of the week, the 10Y LCY yield moved within a band of 1.65-1.8%, while the 10Y German Bund increased from -0.55% to -0.4%. As a result, the spread narrowed further, toward 205bp. The 2Y and 5Y yields remain stable around recent levels of 0.9% and 1.3%, respectively. The MinFin held a T-bill auction on Monday, April 6, and sold PLN 2.9bn of T-bills maturing in 19W and 51W. As far as this week's central bank meeting is concerned, the markets are pricing in further 25-50bp cuts within a 12-month horizon, which is consistent with our expectations.

FX market drivers – Zloty stabilized somewhat

In the first half of the week, the zloty lost some of its recent gains and depreciated back towards 4.60 vs. the EUR. Afterwards, the EURPLN firmed around 4.57. As the US dollar continues to appreciate, it puts pressure on the zloty. The central bank meeting and the discussion regarding the presidential elections in Poland could attract some market attention this week and influence the EURPLN. However, global factors and the development of COVID-19 remain the key driver.

 

Download The Full Weekly Focus Poland