Zloty Pauses Rally To Catch Breather, NBP's Janczyk Sees Potential For Further Easing

Poland's REER hit its best levels since 2008 as the zloty continues to trend higher in the wake of last month's parliamentary elections, with the scale of its appreciation arguably outpacing expectations. The outcome of the elections resulted in the perceived shift in the central bank's reaction function and raised the odds of the release of frozen EU funds, which played into the wider risk-on trend supporting EM FX space. Despite the broader trend being intact, however, the zloty has traded on a slightly softer footing this morning.

• Countering prevalent narratives about the NBP's hawkish pivot, MPC's Wieslaw Janczyk said that there is still much room to lower interest rates in 2024 and beyond, with zloty strength helping curb inflation. The tone of his comments was dovish, with the official blaming various commentators for fuelling inflation expectations and arguing that the 100bp of rate cuts in September and October helped alleviate households' concerns about inflation. However, he reiterated the assessmebt that more clarity on the incoming government's fiscal policies is needed before taking further steps. Furthermore, the central bank's overall rhetoric after the elections has indeed been pointing to a diminished potential for renewed monetary easing at least until the publication of the next macro projection in March.
• EUR/PLN probed the water below 4.35 yesterday, before today's correction took it to 4.3611 (+110 pips on the session). The RSI is flirting with oversold territory. Technically, the key bearish target is provided by Mar 12, 2020 low of 4.3237, while bulls keep an eye on the 20-EMA at 4.4236. Meanwhile, greenback weakness allows USD/PLN to consolidate below the psychologically significant 4.00 figure, which gave way on Monday, despite a minor uptick today.
• Statistics Poland released the first batch of October macroeconomic data, which we summarised in an earlier bullet.