PLN: Dovish NBP and rate-cut debate – ING

ING’s Frantisek Taborsky reports that NBP Governor Glapinski and council member Litwiniuk signalled inflation near the 2.5% target and room for further easing, with rates potentially falling to 3.50%. Markets, however, price a lower 3.25% terminal rate. EUR/PLN remains tightly rangebound around 4.210-4.230, with risks seen slightly skewed below 4.210 but no strong directional conviction.

Market more dovish than Polish central bank

"Yesterday, National Bank of Poland governor Adam Glapinski said in an interview that inflation will be close to the central bank’s 2.5% target this year and “maybe” in 2027, suggesting that this will be the new NBP forecast to be published in March. Although the governor did not comment on the level of rates, this suggests there is comfortable space for another rate cut in March. Similarly, monetary council member Przemyslaw Litwiniuk commented on the situation, seeing a March rate cut as “quite likely”. At the same time, he sees the possibility of a further decline in inflation due to the change in the CPI basket, which is currently in process, and the statistical office has suspended the publication of the flash estimate. According to Litwiniuk, rates should probably fall to 3.50% from the current 4.00%."

"Overall, the tone from the monetary council members was dovish and further rate cuts seem very likely. On the other hand, the market is essentially pricing in 3.25% as the terminal rate, while the NBP's communication is focused on 3.50% as the end of the cycle. Of course, we have seen several downside surprises in inflation and the market is thus maintaining an understandable buffer that this trend will continue, which will push the NBP to be even more dovish. On the other hand, at this point, there is little to suggest that we should price in further rate cuts and the risk seems to be on the upside if the economy surprises with its strength or inflation does not fall as expected."

"EUR/PLN does not offer much of a story this year and February has so far only brought a further narrowing of the already narrow range from 4.200-230 in January to the current 4.210-230. Taking the above into account, the risk for EUR/PLN is rather below 4.210 in our view. However, we are still far from having any strong conviction on the next direction."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)