Polish Zloty: Cautious NBP stance sustains pressure – Commerzbank

The Zloty is likely to remain under pressure as inaction by Poland’s NBP risks leaving monetary policy behind the curve, argues Commerzbank’s Tatha Ghose. He expects the central bank to hold its base rate at 3.75%, even as temporary fuel tax cuts mask what he sees as underlying inflation risks. In his view, monetary policy should look past administrative interventions.

How do underlying inflation risks affect the Zloty?

"Poland’s National Bank (NBP) will announce its November monetary policy decision this afternoon: the analyst consensus nearly unanimously forecasts that the base rate will remain unchanged at 3.75%. As usual, tomorrow’s press conference and new NBP projections will hold more interest than today’s rate decision itself."

"Nevertheless, it is worth pointing out that October’s apparent CPI weakness was responsible for delaying rate hikes. But, it should not. Headline inflation slowed to 3.5%y/y from 4.1%y/y in September, but this slowdown occurred only because of well-known administrative fuel-price adjustments (the government lowered VAT on fuel to 8% from 23% and reduced excise duties to EU minimum levels; passenger fuel prices consequently fell by 9.7%m/m). Such a development is temporary tax intervention, not genuine disinflation."

"Monetary policy should ignore such administrative intervention and target the preceding acceleration to above-target underlying inflation. Raw energy and commodity-price pressures remain elevated, the labour market is still tight, and the fuel support is currently scheduled to expire at year-end. The upcoming inflation projections may clarify some scenarios, but cannot resolve uncertainty surrounding future government interventions, regulated tariffs or political developments."

"In our view, NBP’s inaction risks pushing Polish monetary policy behind the curve; the zloty will, therefore, remain under pressure."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)