Speculation On a Pivoting Board Surges Following Inflation Print

• This morning, economic data showed that inflationary pressures continue to increase in Poland with September CPI inflation coming in higher than expected at 5.8% (vs. 5.5% exp.), up from 5.5% the previous month.
• It seems most likely that the NBP is going to raise rates earlier than expected; market is pricing in a first move at the November meeting as inflation forecasts are going to be reviewed to the upside.
• Until now, the majority of the board (five members including NBP Governor Glapinski) have been in favor of keeping interest rates low while the economic recovery is taking place (delaying the tightening cycle until Q1 2022).
• On the other hand, 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.
• This morning, NBP member Hardt commented on twitter (following CPI print) that NBP urgently needs a '15bps' hike; the central bank will need to hike more aggressively if it keeps delaying its tightening cycle.
• Forward rates have been surging in the past two weeks with the FRA 3Mx6M trading at 40bps above the Wibor 3M, already pricing in two to three 15bps hikes by early January (see chart).
• The rise in inflation combined with the quiet NBP has been weighing on both Polish LT government bonds, with the 10Y yields currently testing its key resistance at 2.2%, but also PLN, which was recently trading at multi months low against major crosses.
• Interestingly, the higher than expected print in CPI this morning could lead to some speculation on a pivoting board and therefore short term PLN strength (especially as the currency was significantly 'oversold' following the strong selloff in September).

Source: Bloomberg/MNI