What will the Monetary Policy Council do today? [Market comment]

The main event of Wednesday in the domestic currency market is the meeting Monetary Policy Council. For the first time in a very long time, it is not known what decision the Council will make today. Investors will know the MPC decision in the afternoon. From May 2020 it was always after 14 p.m., and at the last December meeting, it was announced even at 00:16 p.m. This decision may have a significant impact on the zloty, as currently the intentions of the Council regarding interest rates in Poland are not entirely clear. Therefore, from the point of view, it is definitely the highlight of the day.

In the last days of December and just after the New Year, it seemed that the interest rate cut at the January 13 meeting was obvious. Such a conviction appeared after the president Adam Glapiński (using the service "Observer Finansowy") and some members of the MPC launched a media offensive at the end of December, pointing to too strong zloty and the need to cut rates. This suggested that there was a majority in the Council that would vote the rate cut.

NBP president on interest rates

A week ago, expectations have changed. Then we got to know the full opinion of the NBP governor on the interest rate issue. The number of conditions mentioned for such a decision ruled out the cut in January. However, there is still little chance for a reduction in the first quarter of this year. This is now a valid guideline. Almost all economists and analysts assume that interest rates today will remain unchanged.

However, this conviction about the invariability of interest rates is shaken by the recent, surprisingly surprising data on a sharp drop in inflation in Poland. In December, it unexpectedly dropped from 3 percent. up to 2,3 percent Y / y, while the market expected a decline to only 2,6%. But that's not all. On Monday, the government decided to extend the "National Quarantine" in Poland until the end of January. As there are many indications that the pandemic restrictions will also be maintained in February, and most of them are likely to be lifted only at the turn of March and April, the situation from the MPC's point of view looks a bit different. Falling inflation and the prolonged lockdown hitting the economy are already serious arguments for loosening the monetary policy. The only question is, will it happen today?

EUR / PLN daily chart. Source: Tickmill

The MPC decision will have a direct impact on the zloty. Including mainly in relation to the euro. In the short term it will be what the MPC will do today. The interest rate cut will push the EUR / PLN to higher levels. Lack of cut will be an impulse for its strengthening at the end of the day. In the following days, but maybe even weeks, it will be much more important what suggestions regarding monetary policy and the zloty itself will be included in the statement after the MPC meeting.