Zloty Edges Higher But Stays Within Familiar Range Ahead Of Key NBP Rate Decision

EUR/PLN has shed almost 100 pips and last deals at 4.4647, extending losses recently as the greenback sold off in reaction to the latest US NFP report. The zloty has been largely immune to the recent speculation surrounding the possible timing of the first NBP rate cut in light of recent macroeconomic data. The pair remains stuck in a narrow range, trending sideways over the past couple of weeks.

• The market pretty much prices a 25bp rate cut from the NBP next week, with 3-Month WIBOR/PLN 1x4 FRA spread sitting at around 28bp at typing. Sell-side desks are more divided, with a Bloomberg poll revealing a 12-11 split in favour of unchanged rates. However, based on several sell-side notes we've reviewed so far, even those who pencil in the first NBP rate cut for October flag a significant risk of an earlier move.
• Yesterday's inflation data put next week's rate cut into question (which was evidenced by upticks in local FRA contracts), as prices continued to rise at a double-digit pace, refusing to meet Governor Adam Glapinski's key condition for the start of the easing cycle. However, there is a risk that the Governor could be outvoted by other dovish policymakers, either in a genuine difference of opinion or in an attempt to preserve the credibility of communications. He could also bend his earlier rhetoric and point to well-entrenched expectations of a single-digit inflation reading in September.

Fig. 1:3-Month WIBOR vs. PLN FRAs

Source: MNI - Market News/Bloomberg