Zloty Weakens, NBP's Wnorowski Plays Down QT & Sees Scope For Rate Cuts

EUR/PLN has added 80 pips to last trade at 4.4055, consolidating above the psychologically significant 4.40 threshold, even as the WIG20 Index has edged higher. Technically, a clean break above Oct 17 low of 4.4096 (the level was pierced yesterday) would expose the 38.2% retracement of the Sep - Dec bear leg at 4.4477. Conversely, on the downside the focus falls on Dec 13 low of 4.2935.

• The flow of dovish rhetoric from the NBP resumed. MPC's Wnorowski told ISB News that inflation will reach the +2.5% Y/Y target in Q1 (or even print slightly below there) before rebounding close to the levels from end-2023. In Wnorowski's view, this opens up scope for monetary easing, but in a limited amount. He joined the choir of officials playing down potential for QT, citing its disadvantages relative to rate hikes, which are also rather unlikely.
• POLGB yields are slightly lower, last sitting 1.2-3.4bp below neutral levels, with FRAs ticking away from recent highs. Santander wrote that they see scope for downward correction in local interest rates following recent increases. Commenting on those increases, mBank cited their conversations with foreign investors, who are slowly realising that the NBP doesn't want to cut rates. By contrast, ING think that it doesn't seem like the market is going to revise fairly dovish NBP rate-cut pricing.
• The Sejm approved the 2024 budget, sending it for review to the Senate. Some outlets have suggested that President Duda will ask the Constitutional Tribunal to look at the fiscal plan amid escalating political tensions, albeit PM Tusk said that it would be but an "ineffectual political manifesto" which would not prevent the budget from being implemented.