We have been bullish the USD on the zloty in articles recently and its had a great move to the upside and we see far more upside ahead – Our view on why and the key technical levels to look out for in the article below...
A Surprise Rate Cut in Size 75 BPS
On Wednesday, the National Bank of Poland surprised markets with a steep cut in its benchmark interest rate, changing course on monetary policy ahead of other central banks and before a fiercely contested national election.
The rate was lowered to 6 percent from 6.75 percent most forecasters expected a 0.25 percentage points cut as inflation remains above 10% which is far above the EU average. So why such a big cut?
The National Bank of Poland (NBP) said it took the decision because it expects inflation to return to target quicker than it originally expected. "In the Council's assessment, recently incoming data point to a weaker demand pressure than previously expected, which will contribute to a faster return of inflation to the NBP inflation target,"
Poland Inflation High Inflation But Political Considerations
The Central Bank and its president Adam Glapiński, were Probably influenced by the the ruling Law and Justice party (PiS) which is seeking a third consecutive term in office with a parliamentary election on October 15. There was no economic justification for such an excessive cut.
“The decline in inflation is largely due to the receding of the earlier energy shock, but the deceleration in core inflation has been slow. So a further decline in inflation toward the NBP target in the medium term is not clear in our view. The labor market remains tight, resulting in upward pressure on wages. Fiscal policy also remains expansionary. In this context, we perceive the Council's decision as risky from the point of view of restoring price stability in the medium term.” (INGTHINK) We agree and also Poland is seeing an economic slow up...
The Polish economy is slowing up and will slow further as the eurozone overall moves to recession and internal consumption is also dropping. Poland also has the burden of several million Ukrainian refugees which are a burden on finances and local services.
The Wildcard Russia-Ukraine Conflict
The Ukranian counter-offensive looks exhausted and if Russia decides to push further West this will lead to millions more refugees fleeing into Poland. Also, senior Polish officials have muted the idea of intervening militarily in Ukraine outside of NATO if this occurs it will be a disaster for the Zolty as it could lead to direct conflict with Russia – This is not a high probability scenario but its certainly possible but even without this scenario coming into play the Zloty looks set for far lower prices
The key levels of support and resistance to look out for in terms if USD/PLN are on the charts below