Polish GDP growth’s momentum remained strong with the real GDP growth of 3.9% in Q4. However, short-term indicators suggest temporary slowdown in economic growth in Q1 2016. In January 2016, industrial production growth declined to 1.4%, while retail sales growth decelerated to 3.1% in real terms from December’s 7%. However, Poland’s net external exports continue to perform well as steady improvements are continued to be seen in trade balance.

In February, Poland posted a relatively strong PMI of 52.8, implying continuing strong economic activity. In H2 2016, Poland’s economic growth is likely to rebound as the newly adopted child benefits scheme helps private consumption and external demand continues to bolster notably as growth rebounds in the euro area.

“We have raised our full year 2016 estimate for real GDP growth to 3.8% from 3.5%”, says Danske Bank.

Meanwhile, the NBP’s new monetary policy committee kept the policy rate on hold at 1.5% on 11 March. The new committee hinted at the continuation of the central bank’s inflation targeting mandate, implying that interest rates will be kept unchanged. Going forward, the relatively strong Polish economic growth, capacity utilization, stretched labor market and rebound in oil prices are likely to keep a floor under policy rates. As the economic growth accelerates, the NBP is expected to move to a tightening bias from H2 onwards.

“We see the EUR/PLN range trading around 4.30 in 1M-3M. On 6M and 12M horizons, we expect the PLN to strengthen to 4.22 and 4.15, respectively, as we believe strong economic fundamentals will continue to support the zloty and as political uncertainty dissipates and the global environment improves”, says Danske Bank.

The FX risks are slightly tilted on the downside over the next 3M. There is a risk of a possible open row with the EU and new controversial government initiatives in the near term. On a three-month horizon, the Swiss loan conversion plan might be adopted that might increase the risk premium. However, additional rebound in risk sentiment with a dovish major central bank might support the zloty.