Uncertainty Over Policy Outlook Could Weigh on PLN

• Unlike its CEE peers (Czech, Hungary) that have clearly embarked into tightening cycle and will continue to hike rates until inflationary pressures start to ease, NBP Governor Glapinski refused to comment if this week's move was the start of the tightening cycle for Poland.
• Policy outlook will be conditional on the inflation and economic activity data and forecasts.
• With inflation expected to rise up to 6% by the end of the year, odds for more hikes in the coming meetings have been rising, but the outcome still remains binary.
• Hence, the uncertainty over the policy outlook could continue to weigh on PLN against major crosses.
• In addition, the on-going dispute with the EU (with Poland top court ruling on Thursday that parts of EU treaties are incompatible with the Polish constitution) could also impact the zloty in the medium term, as the recent decision endangers the government's access to the 36bn EUR in pandemic aid.
• We will see if the momentum in equities, which has been strong in the past 18 months partly driven by the surge in global liquidity, will continue in the near to medium term while PLN remains weak against major curries.
• The chart below shows that weaker PLN has been associated with cheaper equities (and vice versa) in the past cycle.

Source: Bloomberg/MNI