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Forward Rates Continue To Rise Following Positive Surprise in Inflation

POLAND
  • Inflationary pressures continued to surprise positively in August, with CPI inflation coming in higher than expected at 5.4% YoY (vs. 5.1% exp.), up from 5% the previous month.
  • Even though the majority of the NBP members is still aiming to keep interest rates low as the economic uncertainty remains elevated, traders have been speculating that the NBP board will pivot towards a gradual tightening.
  • FRA 5Mx8M is currently trading nearly 50bps above the Wibor 3M, implying that participants are currently speculating that the NBP will hike twice (25bps) by February.
  • NBP dove Gatnar continues to believe that the NBP should start a tightening cycle at the next meeting on Sept 8 with a 'small' 15bps hike following the positive inflation surprise this morning. He told TV broadcaster Biznes24 that inflation is no longer purely supply-side, especially in services.
  • On the other hand, policymaker Jerzy Zyzynski sees the policy rate steady until the end of 2021 as the uncertainty over the pandemic remains elevated. In addition, he reiterated that Polish inflation is currently driven by supply factors (outside of control of policy makers).
  • Momentum on PLN has been firmed against major crosses today following the CPI print, mostly driven by the rise in forward rates.
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