The renaissance of the zloty. The market is playing for a rate hike by the MPC

The strong jump in September's inflation in Poland reignited hopes for an interest rate hike by the Monetary Policy Council, and at the same time became an impulse for a return in the zloty.

The golden one returns to favor

Friday on the currency market was marked by zloty strengthening against the main currencies. At noon the EUR / PLN rate fell to PLN 4,5859 from PLN 4,6047 on Thursday at the end of the day and against Thursday's maximum at PLN 4,6469. This is just the beginning of the decline.

Two days were enough for the situation on the zloty to change by 180 degrees. And all thanks to the inflation data in Poland published today and the minutes of the last meeting of the Monetary Policy Council published yesterday. The Czech Bank also helped slightly.

In September, inflation in Poland unexpectedly soared to 5,8 percent. on an annual basis. This is not only the highest inflation in 20 years, but also the data turned out to be much higher than expected. The market consensus assumed that inflation would stabilize at 5,5 percent in August. R / R. 

When will the NBP raise interest rates?

September's inflation jump automatically raises its path. In October, inflation may reach 6%, and in the next few months it may approach 7%. And this already changes expectations as to future decisions of the Monetary Policy Council. There is growing expectation that the Council may raise interest rates in November. Such a suggestion appeared in the statement released yesterday from the last MPC meeting, where one can find a mention of the formation of a majority capable of passing such a rate hike in the future.

These are not the only factors that suggest it. The market interprets this bizarre conclusion from the September meeting of the Council for a 190 bp rate hike in the same way, as well as yesterday's strong rate hike by the Czech Bank.

Return of expectations for increase in interest rates, strengthens the zloty to the currency basket. And so, on the EUR / PLN chart we have a strong return, which should be an introduction to further strengthening of the Polish currency. At least a few more cents. Undoubtedly, waiting for the MPC meeting next week will help in this.

EUR / PLN daily chart. Source: Tickmill

The market will probably find out in a week's time whether there are any chances for a rate hike in November. On the occasion of the president's monthly press conference National Bank of Poland. If president Glapiński does not change his dovish rhetoric, the zloty will start to weaken again. If, however, he suggested that the door to the rate hike is open, the zloty will start to appreciate strongly, and the EUR / PLN exchange rate will quickly return to PLN 4,50.