Zloty Outperforms Regional Peers Despite Downward Adjustment To Polish FRA Curve

The zloty trades on a firmer footing, outperforming both of its CE3 peers, despite dovish NBP repricing provoked by local inflation/growth data and the surrounding central bank rhetoric. When this is being typed, EUR/PLN trades -34 pips at PLN4.5340, with familiar technical levels still in play.

• NBP's Wnorowski said that inflation could fall to single digits as soon as in August, which would open up scope for discussing rate cuts (albeit he flagged hawkish risks to these expectations), joining the growing cohort of policymakers flagging potential for monetary loosening by the end of this year.
• These comments came as Poland's CPI inflation cooled more than forecast in May, according to a flash reading, while unofficial estimates pointed to a notable deceleration in core CPI growth. Meanwhile, final Q1 GDP data showed a firm drop in private consumption as inflation and tight monetary conditions squeeze household budgets.
• The data/NBP story overshadowed several emerging risks for the zloty. First, the decision to establish a committee probing "Russian political influence" has drawn widespread criticism from Poland's allies, legal experts and opposition parties. Second, the Constitutional Court yet again failed to reach quorum to hear a case on court legislation needed to unlock EU funding. Finally, the EU's top court is due to announce its verdict on CHF loans on June 15, which may deliver a blow to the local banking sector.