NBP Preview: QE & FX Intervention Preferred Over Rate Cuts

NBP PREVIEW 13/01/211300 GMT / 0600 ET

• POV: NBP QE & FX Intervention Preferred Over Rate Cuts
• The NBP is likely to keep rates on hold at 0.1% on Wednesday, despite a surprising shift in rhetoric towards a dovish outlook in December/Jan. Comments across the MPC alluding to space for a 1Q21 rate cut and shots at an "overvalued" PLN weighing on export/growth performance have injected a bit of uncertainty into NBP policy expectations - but consensus remains for rates to stay at 0.10% at this meeting & out to 2022.
• Although headline CPI has seen a strong deceleration to 2.3% YoY in Dec, core remains persistently high at ~3.7% - limiting room for further cuts to 0.0% and beyond. Achieving a majority in the MPC to push through a cut is also unlikely, given substantial posturing against the negative impact of sub-zero rates in recent months.
• PLN is trading ~2% weaker vs 2 Dec levels following direct NBP FX intervention to force EUR/PLN above 4.50 amid low liquidity in late Dec, with an eye to continue in 2021 to ensure PLN strength. For now, QE, PLN weakening through FX sales/MPC commentary and dovish rate cut comms from the NBP should be the preferred method for easing over rate cuts.
• Markets tentatively pricing in some easing, but with the conditions for cuts being linked to accelerated economic deterioration, worsening virus conditions and/or PLN appreciation, the bar is likely too high for any change at this meeting. However, a 10bp cut to 0.00 in 1Q21 cannot be fully discounted if core figures decelerate decisively below 3.0%.