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NBP Preview: QE & FX Intervention Preferred Over Rate Cuts
NBP PREVIEW 13/01/21 - 1300 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%.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.