Prices in Poland are rising at the fastest pace in two decades, approaching 8 percent year-on-year. Unfortunately, despite the inflation shield, this may be only the beginning of an inflation increase to about 10 percent.
A plan approved today by the Energy Regulatory Office to increase electricity and gas tariffs for households may be responsible for further price increases. According to the calculations of the Energy Regulatory Office, in 2022 for electricity we will pay on average about 24 percent more than in 2021, and for gas more than 50 percent. Thus, the increase in costs of, for example, house maintenance may increase by about PLN 200 per month net. Since the inflation basket calculated by the Central Statistical Office (GUS) includes approximately 20 percent the use of housing and energy carriers, the impact on the inflation reading may be huge.
Although Poland plans to introduce an anti-inflation shield and cut VAT, the tax is due to return in April 2022. Then, after a quieter first quarter of next year, inflation could rise in Poland as high as around 10 percent! This, in turn, may be met with action by the National Bank of Poland, which may not tolerate record negative real interest rates.
With the interest rate at its current level and inflation close to 10 percent, the real interest rate would be around minus 8 percent. Hence, it seems that by spring 2022 The MPC will decide to raise interest rates so that by April 2022 the reference rate will be at 3-3.5 percent, reducing the negative real interest rate.
How can the zloty behave in this situation?
To prevent the situation from getting out of control and resembling what is happening in Turkey, the NBP may stop announcing possible currency interventions and start balancing risks to economic growth due to an increase in the cost of living with possibly lower household consumption. Ultimately, if no negative surprises occur, the zloty may even strengthen due to a potentially growing disparity in interest rates. With such a turn of events it is possible that EUR/PLN pair will manage to hold on to the area of 4.70 as a potential point of resistance. The region of 4.57 could be potential support for the exchange rate.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
