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Dovish NBP Keeps Weighing on PLN

POLAND
  • The Polish Constitutional Tribunal yesterday again adjourned a ruling on the government's motion to decide if EU law and the rulings of the Court of Justice of the European Union (CJEU) take precedence over Poland's domestic legal order. The session was adjourned until September 30, with the tribunal's President Julia Przylebska citing "new circumstances and new allegations" that emerged during the hearing (BBG).
  • This morning, policymaker Cezary Kochalski said in an interview that it is still too early for the NBP to tighten its policy even though Polish inflation is very likely to remain above 5% until the end of the year.
  • Last week, NBP member Jerzy Kropiwnicki mentioned that a rate hike in coming months cannot be ruled out and that the central bank decision will depend on the November projection. The first hike is likely to be 'small' and the NBP would not have to stop QE first to embark in a tightening cycle.
  • At this stage, there are three policymakers (Hardt, Gatnar and Zubelewicz) voting for an 'imminent' rate hike as they mentioned several times that inflation is now demand-driven in Poland and a gradual tightening could ease the inflationary pressures.
  • The dovish NBP has been weighing on both PLN and LT bond yields this month, with the zloty currently trading at multi-month lows against some major crosses (i.e. EUR, USD, JPY).
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