The first meeting of the Monetary Policy Council after the parliamentary elections

Today ends the two-day meeting of the National Bank of Poland. Everything indicates that the institution will reduce interest rates by 25 basis points from 5.75%. up to 5.5 percent This is probably the last downward move this year. Expectations for today’s easing of monetary policy have increased after the better-than-expected October CPI reading. In recent weeks, the zloty has managed to erase all the depreciation caused by the unexpected September cut in the cost of money. This process was supported by the results of the parliamentary elections. Investors were optimistic about the likely change of power in Poland.

Interest rates

In addition to decisions on interest rates, November also means the publication of a report on inflation by the National Bank of Poland, which will present new macro projections. The path of interest rates in Poland in the coming months may depend on them. It will be interesting to see how the forecasts take into account higher VAT rates on food and electricity and gas prices in 2024. Expectations indicate that the Council will increase the cost of money by 25 basis points.

We are already after the parliamentary elections and it is highly probable that there will be a change of government in Poland. The composition of the Monetary Policy Council will not change in any way in the near future, although it is speculated that now more attention will be directed to ensuring price stabilization than to economic growth. In the following months, interest rates they may fall further, but it will be a much slower pace than recently assumed. An argument for the November cut may be a greater than expected drop in CPI inflation to 6.5%. on a year-to-year basis.

How will the zloty react?

The decision of the Monetary Policy Council (cut by 25 bp) will probably be neutral for the zloty. Much will depend on the macro projection and what Adam Glapiński will say at the press conference. If the forecasts show that the high level of rates will be necessary to maintain (because inflation will not reach the target within the forecast horizon) and at the same time the President of the NBP confirms this in his words, then the zloty may gain in value because the market will start to price in the fact that a high interest rate levels may be maintained for a longer period of time. Let us also remember that the post-election appreciation potential has been largely exhausted and this factor will have a smaller impact on the valuation of PLN.

EUR/PLN is currently in consolidation between 4.48 and 4.44 and the exchange rate should continue to move within these limits in the near future. There is still potential for declines on USD/PLN, but this is largely due to the prospects for a weaker dollar. The market is increasingly assessing the end of the Fed’s monetary tightening cycle and possible first cuts in 2024. On Friday, the quotations managed to “break” the technical support at 4.17 and reached the next important level of 4.15, which results from the peaks from July and August this year being formed in this area. In turn, defeating 4.15 will open the way towards 4.10 – 4.08. The recent downward correction on EURUSD caused the USD/PLN quotations to increase again to 4.18. However, the pressure on the dollar should continue.