The MPC surprises and cuts interest rates. What does this mean for the Polish currency?

The zloty is benefiting from improved sentiment in financial markets related to a decrease in concerns about how coronavirus pandemic may translate into global economic outlook. Signals of opening more economies and a decrease in the number of cases cause that investors value the chances of a faster economic rebound, and as a consequence approach the investment in risky assets, such as stock or emerging market currencies.

Until now, it was thought that blowing the deficit through the anti-crisis shield or interest rate cuts National Bank of Poland will be the factors that should directly weaken the zloty, while recent weeks showed that such tendencies did not occur. This changed when, contrary to market consensus, the MPC cut interest rates at today's meeting, postponed from the first days of May.

The NBP reference rate was established at the level of 0,10 percent. on an annual basis (so far 0,5%, and before the outbreak of the pandemic, the main rate was 1,5%). The unexpected decision of the Monetary Policy Council caused a decline in the zloty and listed banks.

Interest rates and PLN

- After a surprising decision (the last meetings were held without press conferences due to the pandemic) EUR / PLN is rising from 4,42 to 4,44 and is testing yesterday's afternoon highs. Breaking them would take the pressure off yesterday's lows - ocenia Bartosz Sawicki, head of the Analysis Department at TMS Brokers.

The decision was a surprise, as the zloty rally coincided with growing stocks and information about the lifting of further restrictions introduced in connection with the coronavirus and about the European Commission's proposal to allocate nearly EUR 64 billion for economic reconstruction for Poland. It was even said that foreign investors would return to the Polish market, and that such a dynamic strengthening of the zloty had not been observed for many years.

The tsunami effect will remain?

It should be remembered that the COVID-19 pandemic caused a global economic tsunami. Emerging markets, including Poland, were hit hardest by the tsunami.

March 2020 was the month of the strongest capital outflows in the world from emerging economies in history. Only in this one month, foreign investors from the emerging stock and bond market withdrew over USD 83 billion, which is more than in the entire global financial crisis. Moods have improved significantly in the global markets since mid-March, which is due to the fact that central banks and authorities have started to fight the consequences and pandemics, which have unprecedentedly eased their fiscal and monetary policy.

Despite this International Monetary Fund warns that the recession caused by Covid-19 will be more severe than the global financial crisis of 2008–2009.

- At that time, the zloty depreciated against the euro by more than 50 percent in a few months. The dollar exchange rate soared from PLN 2 to almost PLN 3,9. Many investors and entrepreneurs who remember that period look to the future with understandable concern - explains Bartosz Sawicki, head of the Analysis Department at TMS Brokers.

source: Press material, DM TMS Brokers