The market was surprised by the lack of interest rate cuts by the Monetary Policy Council, which resulted in the zloty and bank shares gaining.
The latest comments of Federal Reserve representatives, although not groundbreaking, allowed the dollar to make up for some of the losses incurred at the beginning of November. Yesterday, Powell did not comment in any way on the prospects for the Fed’s monetary policy, so today investors’ eyes will be focused again on the chairman of the Federal Reserve, who will take part in a panel discussion of the International Monetary Fund. It will concern challenges for monetary policy.
A surprising decision of the Monetary Policy Council
In Poland, the market was surprised by the lack of interest rate cuts by the Monetary Policy Council, which resulted in the zloty and bank shares gaining. In the macro calendar today, the number of publications is very limited.
When the key macro publications are behind us and the calendar is boring, the market focuses on other elements. Now the focus is on the statements of individual Fed representatives and Chairman Powell himself. They haven’t brought anything new so far.
However, decision-makers are trying to suppress the mood and are still “playing” the open door for further monetary tightening. At the same time, FOMC members are trying to warn the market not to draw hasty conclusions from one weak labor market report and emphasize that subsequent publications will be crucial for the December decision. The labor market is important, but not crucial, and a lot will depend on the further development of the price growth dynamics. CPI indicators for the US for October will be released next Tuesday and it will probably be a day of increased market volatility. Further confirmation of a decline in inflation in the United States will weaken the dollar and cause demand for risk to become active again.
Disappointment in the markets
In September, the National Bank of Poland surprised with a large reduction, which resulted in an avalanche weakening of the zloty. Yesterday, market disappointment resulted from the lack of changes in interest rates, which consequently contributed to the appreciation of PLN. The EUR/PLN pair dropped below 4.43 for a moment, and the USD/PLN exchange rate equalized the lows from early November and approached the level of 4.14 again. The market received further confirmation that NBP decisions are not very predictable. Communication with the market is still the institution’s Achilles heel. Is the lack of a reduction due to the results of the parliamentary elections? We can only speculate.
The assumption that in the new political reality the Monetary Policy Council will change the front and will again treat price stabilization as a priority rather than economic growth is starting to come true. Therefore, at today’s conference we can hear that the September-October move (a total reduction of 100 bp) was only an adjustment of monetary policy to the current macro situation in the country. If we receive a clear signal that rates will remain at a high level for a longer time and the previous changes in parameters are not the beginning of a regular cycle of interest rate cuts, then the zloty has a chance to strengthen further.