NBP set to become more hawkish, triggering a move lower in EUR/PLN – Danske Bank

According to economists at Danske Bank, the Polish central bank will start raising rates in Q1 22, launching a brief gradual hiking cycle. Therefore, EUR/PLN will edge lower as the central bank becomes more hawkish.

Markets are pricing in 50bp hikes over next 12 months

“NBP’s forceful monetary (and FX) policy easing has been instrumental in helping the Polish economy weather the COVID-19 shock. Following the rate cuts and the pick up in inflation, policy rates in real term are in deep negative territory and at the lowest level on record, since our data series started in 1998.”

 “The central bank has taken the unprecedented step to sustain a weak PLN through both verbal and actual intervention in the market. This has kept the PLN in significant undervalued territory helping to boost exports at the expense of imports and supporting the recovery resulting in a large sustained current account surplus.” 

“With the overshooting of both core and headline inflation, financial markets have priced a significant tightening of monetary policy. More specifically, the central bank is expected to raise its benchmark rates by 50 bp over the next year with 10bp priced already for September.”

“The pricing of the monetary tightening triggered a forceful downward move in EUR/PLN since the turn of the year when governor Glapinsky and MPC members first said a weak PLN was needed to support the recovery of the Polish economy. Hawkish members of the MPC called for a rate hike already in June.”