The price level in the Polish economy has been steadily increasing since the end of January 2016, when according to official data of the Central Statistical Office, the economy emerged from deflation and inflation appeared.
Since then, inflation of consumer prices calculated on the basis of a basket of goods and services estimated by the Central Statistical Office (GUS) most often did not exceed the level of 2 percent. Only in 2017 it jumped to 2.5 percent, being within the set target of the National Bank of Poland, which is just 2.5 percent with a deviation of 1 percentage point. One could say that during this period everything was under control, but it is possible that changes will happen soon.
The interest rate market, where its participants try to estimate and hedge against a possible interest rate increase, points to the highest chances for a rate hike in Poland from December last year. This is determined by FRA 9x12 rates, which increased to 1.76%, where they were still under 1.7% in March. Why then the turn of April and May brings such an increase in the chances for interest rate hikes?
There are several factors, but above all it is not difficult to notice that we are dealing with an increase in fuel prices. Oil on global markets has risen more than 36 per cent since the beginning of the year, and the zloty to the dollar has been at the weakest point in two years. This affects the higher prices of crude oil expressed in zlotys and, finally, more expensive oil at gas stations and the increase in inflation. In addition, food is more expensive. It is a consequence of droughts and diseases, which reduces the supply of food - vegetables, fruit and meat, especially pork, which ultimately translates into a rise in prices, or inflation. What's more, there is quite a rapid increase in wages. These can translate into greater consumption, and greater consumer demand again for higher prices.
Hence, in the 10-member Monetary Policy Council more and more voices are beginning to emerge, which doubt that by the end of the MPC's term, 2022, it will be possible to keep rates at a record low of 1.5 percent. Six members gave such assumption in doubt and - as you can see - the market is also starting to price a more hawkish bias.
The next decision and the MPC press conference will take place on Wednesday, May 15th. It may be interesting also due to the fact that the latest inflation publication indicated the biggest price increases since the end of 2017, 2.2 percent. Theoretically, the more likely the interest rate hike in Poland would be, the better the zloty could behave, which could make up for the previous losses against the dollar, franc or British pound.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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.
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