Zloty ignores NBP rate cut warning, firms against the Euro

Polish central bank kept its 1.5 percent main interest rate on hold, as widely expected. The central bank chose not to follow the monetary easing by the ECB but slashed 2016 inflation forecast from 1.1% (as of Q4) right to -0.35%. The 2017 forecast was cut from 1.45% to 1.25%.

The Polish bank's governor Marek Belka said stable interest rates were the most likely scenario even though the bank was cutting its consumer price forecasts, projecting negative inflation for the next quarters. Investors largely shrugged off Belka not ruling out a rate cut, and the Zolty infact firmed against the Euro.

Such a warning could have hit Polish assets, but the ECB's rate cut and its expanded asset buying scheme, along with robust economic growth in the European Union's eastern wing make the region's assets more attractive.

The zloty firmed against the euro, while Warsaw's bluechip equities index and Budapest main stock index hit a 3-month and an 8-year high, respectively. EUP/PLN remains weak on the day, currently trading at 4.2804 after hitting fresh 3-month lows of 4.2725 on Monday. Rate cuts are unlikely to weaken the zloty from current levels, EUR/PLN likely to return to 4.25 in the medium-term.