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Inflation and Interest Rates

The National Bank of Poland held its benchmark interest rate at 6.75% in November 2022, surprising the markets who expected a 25bps hike to 7%.

Inflation in Eurozone is at 10% but in Poland, it's far higher having increased in October 2022 by 17.9 percent compared to the same month last year. Inflation increased by 1.8 percent compared to the previous month so it's not easing back but the Central bank is on hold in terms of interest rates.

Poland’s central bank is likely to begin cutting rates in 2023 central bank policymaker Ireneusz Dabrowski noted recently. Dabrowski said that falling money supply, rising consumer deposits, and weakening demand all point to abating price pressure. Investors are pricing in as much as half a percentage point of cuts a year from now.

Let’s see if this works out we doubt it inflation is too high to be cutting rates and it’s a huge risk to the economy.

Oil Gas and the Economy

“European and Polish economies are now experiencing a huge energy shock due to record-high prices. This may not be the only challenge on the horizon, as the rising risk of natural gas and coal shortages looms for both households and companies over the coming winter.” (ING THINK)

The Polish economy was heavily reliant on Russian energy and it needs to replace it. Poland’s recent actions on the oil and gas market are “theater of the absurd,” Russian Deputy Prime Minister Alexander Novak noted this week as Polish refiner PKN Orlen asked to receive oil from Russia via the Druzhba pipeline next year, despite Poland saying it would not import from Russia.

The EU embargo from December 5 doesn’t apply to pipeline oil deliveries to the countries in central and eastern Europe but they're unlikely to get what they want from Russia.

“In the short term, rising gas prices also mean more reliance on coal, but this too brings issues. Global coal prices were already rising in 2021, but following Russia’s invasion of Ukraine, they increased threefold.” (EURACTIV)

The energy crisis will continue well into 2023 keep inflation high and hurt economic growth and also the consumer.

Euro Zone Recession

Poland relies heavily on export revenue but with the EU going into recession it will get hit hard. Keep in mind at present the market sees only a shallow recession and many forecasters think the EU can avoid one.

EUR/PLN To Rally

In light of the above, we expect the EUR to move up on the PLN from support sure, it’s a bad situation in the EU generally but the outlook for Poland is far worse. Also, we have political tensions between Poland and Brussels and finally if the war in Ukraine escalates this will weigh on risk sentiment and the Zloty.

Technical Analysis

We have fallen to major support and if we can break nearby resistance we expect an end to the sideways price action and a major rally to the upside. 


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