The zloty is waiting for the MPC and Adam Glapiński

We are entering a hot period on the zloty market. The period when it will become the number one topic again monetary policy, which will determine not only the current behavior of the Polish currency, but also set the direction for its changes in the coming weeks, and perhaps months.

Wednesday's event on the currency market is the meeting of the Monetary Policy Council (MPC) and the expected interest rate hike in Poland. However, this will only be a foretaste of emotions, because it will be continued tomorrow, during the planned press conference of the President of the NBP, Adam Glapiński.

What will the Monetary Policy Council do?

Market forecasts of how much the MPC will raise interest rates in December are very distorted. They range from 25 to 75 basis points (bp). The consensus is 50 bp, but each of the above-mentioned values ​​is realistic.

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It seems that although the MPC is aware that it has delayed its reaction to soaring inflation in Poland, at the current meeting it will be rather cautious in raising the cost of money. There are several factors in favor of this. The proximity of the peak of inflation, significant strengthening of the zloty, government anti-inflation shield, November oil price plunge, or the deteriorating pandemic situation in Poland, to which the government reacted yesterday by introducing new restrictions. Hence, a 50 bp hike would be rational, but a 25 bp move cannot be ruled out either. This, of course, would not end the cycle, it would only spread it over time. Therefore, in the next few meetings the interest rates would probably continue to rise.

Zloty under pressure

For a market that values ​​the rapid increase in interest rates in Poland to a level above 3 percent. in 2022 and 2023, both a 25bp and 50bp hike will be too low. Hence, a natural reaction to such decisions would be to weaken the zloty. Only a hike by 75 bp could strengthen it.

EUR / PLN chart, D1 interval. Source: Tickmill

The situation on the EUR / PLN and USD / PLN daily charts, where the recent strengthening of the zloty is noticeable, seems to fit this scenario. Currently, there is a growing risk of a more or less rebound of these declines. The pretext in the form of the MPC decision would fit in perfectly.

Chart USD / PLN, D1 interval. Source: Tickmill

However, it is worth remembering that the final reaction to the MPC decision on interest rates will not take place today, but only on Thursday, after the press conference of the NBP president Adam Glapiński. A conference during which a scenario of further changes in the cost of money in Poland should be drawn up. And it is he who will have the greatest influence on the behavior of the zloty in the coming months.