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Bond Market Not Expecting Inflationary Pressures To Ease

POLAND
  • The 7D SMA of daily new Covid cases continue fell to 2,400, down from 4,300 the week before (and from 28,900 on April 1st). Poland PM Morawiecki said that the country will reopen cinemas and theatres on Friday, May 21, eight days earlier than originally planned.
  • In an interview yesterday, NBP policymaker Cezary Kochalski confirmed that CPI inflation should decline in the medium term and therefore there is no need to start a tightening cycle in the coming months. He expects interest rates to remain unchanged until the end of the MPC term in Q1 2022. Even though inflation may remain between 4% and 4.5% in the coming quarters, it should fall back below NBP 3.5% upper tolerance band next year.
  • On the other hand, MPC Hardt said that there is no sign that CPI inflation will fall below 3.5% by year-end and that NBP should raise interest rates by 15bps in near future to curb inflationary pressures.
  • As a reminder, the 2023 breakeven inflation is currently trading at 3.72%, implying that the bond market is not expecting inflationary pressures to ease in the second half of this year.
  • The rise in disagreements between NBP policymakers over the trajectory of ST rates has led to strong demand for the Polish Zloty.
  • Next economic data to watch are Average Gross Wages and Employment coming out this morning at 9am (London time).
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