Piotr Matys, Senior Emerging Markets FX Strategist at Rabobank sees yet another squeeze higher in EUR/PLN, but the pair should drift lower in 2021.
“At its next meeting scheduled on November 4, the Monetary Policy Council is likely to send a relatively dovish message to provide the bond market with a firm reassurance that QE will be fully utilised to keep borrowing costs at record low levels. This in turn would allow the government to issue a fresh set of bonds to provide companies with liquidity and reduce the risk of a significant increase in unemployment, which would severely undermine confidence and over the mid-term horizon would result in slower recovery from the 2020 recession.”
“The value of the Polish zloty will determine how much the government can borrow – should it decide to do so – to protect the labour market from the negative effects of the second wave of the pandemic. Expansionary monetary policy around the globe has so far limited the pressure on the currency and allowed the NBP to embark on QE. However, this does not give them a blank cheque. A significant depreciation of the zloty would increase inflationary pressure and could also weigh on consumer confidence. The NBP would have to scale down QE and even tighten monetary policy well before economic recovery is fairly robust.”
“We expect EUR/PLN to peak at 4.65 when there is sufficient evidence in the coming weeks that the pandemic is once again under control. Looking further ahead, EUR/PLN should drift lower in 2021 and end next year at 4.35. This is based on the assumption that private consumption and investment will increase as the current high level of uncertainty fuelled by the coronavirus will diminish when a vaccine is available (hopefully in the first half of the year, which would bode well for the second half).”
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