The Polish economy seems to be doing well for the observed slowdown in the European or German economy. In contrast to the euro zone and the United States, interest rates or monetary support for the economy are not considered in Poland. Such support flows from the side of fiscal stimulation.
Inflation in Poland is close to the target of the National Bank of Poland, which is 2.5 percent with a tolerable deviation of 1 percentage point. Nevertheless, further opinions are beginning to appear that perhaps the Monetary Policy Council will not be able to keep interest rates unchanged until the end of its term in 2022.
In an interview with the Polish Press Agency, a member of the Monetary Policy Council Eugeniusz Gatnar said that inflation, including core inflation, is rising. "I think that CPI will reach 3 percent by the end of this year, which means that it will exceed the target faster than expected in the previous projection. Core inflation will also grow, exceeding 2 percent in the second half of 2019. This will certainly be an argument for the rate hike" he explains. Eugeniusz Gatnar added that the higher inflation forecast in the July projection, combined with the rise in food and energy prices, may lead to a hike in interest rates this fall.
Also paying attention to the statements of other MPC members, it seems that keeping interest rates unchanged up to 2022 may be quite difficult, and the risk tilts towards the possibility of interest rate increases in Poland.
If we were to see an increase in interest rates in Poland earlier than expected so far, it may have a favorable effect on the zloty. At that time, a greater divergence in expectations between Poland, the euro zone and the United States would appear. In these economies, the market expects monetary policy easing, and in Poland it could expect to tighten. Divergences of this type may have a significant impact on the exchange rate in the long-term, in this case the zloty.
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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