Strong zloty, the Monetary Policy Council in the spotlight

Tuesday's event on the domestic FX market will be the meeting of the Monetary Policy Council (MPC). Although the Council will not change interest rates, one cannot rule out a correction of the communiqué. And this may have an impact on the zloty and the Polish debt market.

Gold holds firm

In the morning the Polish currency remained at levels similar to those seen at the end of Monday's trading. So she stayed relatively hard. The EUR/PLN exchange rate was at the level of PLN 4,4780 (no change compared to Monday), ie at the lowest levels for almost 2 years. The USD/PLN exchange rate was at PLN 4,18, GBP/PLN at PLN 5,1980 and CHF/PLN at PLN 4,6155.

Today in the morning interest rates unexpectedly increased by 25 basis points Reserve Bank of Australia. He did it out of fear too high inflation and to ensure that it returns to the inflation target in the future.

A similar move in Poland will certainly not be made by the Monetary Policy Council, which will also announce a decision on interest rates in the afternoon. President of the National Bank of Poland (NBP) Adam Glapiński and most members of the Council, however do not rule out any scenario, have long been strongly suggesting that despite still high inflation in the country (13% y/y in May according to preliminary estimates), the monetary policy tightening cycle in Poland has ended, and the next decision will be to cut rates.

Pre-election game?

It is almost certain that at the two-day meeting ending today the Monetary Policy Council will decide to leave interest rates at current levels, which means maintaining the main rate at 6,75 percent. It has remained at this level since September 2022, when the last increase took place. However, it cannot be ruled out that there will be a certain correction of the content of the communiqué accompanying this decision. This may happen if the pre-election, autumn interest rate cut in Poland is at stake, which, despite the lack of conditions for such a decision, is bet on by some market participants and what some members of the Council seem to suggest.

It also seems that expectations for such a rate cut will be additionally boosted tomorrow at the press conference by the governor NBP, emphasizing the faster-than-expected drop in inflation observed in the last month, both in Poland and in the whole of Europe. At the same time, pointing to its likely rapid descent to single-digit levels in the coming months. At this point, it should be emphasized that however Poland is now on a fast disinflation path and soon inflation will be below 10%, it will still be well above the inflation target, and a return to it is still a distant prospect. A possible interest rate cut this year will make this return even more difficult.