Polish central bank likely to hike rates in Q3 2018, EUR/PLN likely to remain unchanged over next three months

The Polish central bank, National Bank of Poland, is in no hast to hike the benchmark rates in spite of the headline inflation rising, which reached 2.5 percent in November. But the meeting minutes stated that many MPC members are starting to feel uneasy regarding the monetary policy stance. But the core inflation pressures have continued to be quite constant in recent months.

According to a Danske Bank research report, the headline inflation is likely to drop slightly in months ahead before rebounding in April given the rise in domestic inflation pressures. The financial market is pricing in a 25 basis points hike in the next year, which is too dovish as the NBP might hike rate in early Q3 2018, stated Danske Bank.

After the softening in the third quarter, Polish zloty has recovered waning tensions with the EU and solid underlying performance of the Polish economy.

“As we expect inflation to drop near term despite strong economic performance, we think EUR/PLN should remain fairly unchanged over the next three months”, stated Danske Bank.

But given the expected recovery in inflation in the second quarter of this year, the EUR/PLN might drop as the market would price in additional hikes by the NBP.

“Our forecasts for EUR/PLN are 4.20 in 3M, falling to 4.16 in 6M and 4.14 in 12M. However, as noted in the risks section, the cross may see temporary spikes in the cross around confrontations with the EU, but strong economic fundamentals will likely pull it down again”, added Danske Bank.

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