The zloty is strengthening while awaiting the NBP president's conference

The zloty started the day with a strengthening to the basket of the main currencies. The Polish currency benefits from the improvement in moods in global markets and the related increase in risk appetite. However, most of all the zloty is gaining in anticipation of the president's press conference in the afternoon National Bank of Poland (NBP) Adam Glapiński. It will start at 15:00 CET and will be the main event of the day on the domestic currency market, and next to yesterday's meeting of the Monetary Policy Council (MPC) and tomorrow's data on consumer inflation in the US, the main event of the week for the zloty.

Strengthening of the zloty

The EUR / PLN exchange rate fell to PLN 4,5130 this morning, including the 4th consecutive decline and returning to the levels from the second half of January, when the fear of the outbreak of the Russo-Ukrainian war and the then strong deterioration of moods in the global markets pushed the euro towards PLN 4,60.

EUR / PLN daily chart. Source: Tickmill

Yesterday MPC decision triggered a mixed reaction of the currency market. Initially, the market was disappointed that the Council raised interest rates only by 50 basis points and the zloty weakened in the first reaction to this decision. However, he regained vigor after the publication of the Council's communiqué, which included the sentence that "The appreciation of the zloty would be consistent with the direction of the monetary policy pursued" and from which investors learned that the Council increased the required reserve rate from 2 percent. up to 3,5 percent

Pending the conference

NBP pressure on zloty appreciation, visible both in the comments of the central bank governor and some members of the Council, and also in the Council's communiqué since yesterday, is now one of the most important factors supporting its appreciation today. It is probable that at the press conference scheduled for 15:00, Adam Glapiński will continue to point to the need to strengthen the zloty as a means to quickly reduce high inflation in Poland. Hence, in anticipation of the NBP president's conference, the zloty may strengthen further, and a decline to PLN 4,50 is a realistic scenario.

In the medium and long term, verbal interventions alone will not be enough to strengthen the Polish currency. Especially that the risks related to the lack of funds from the National Reconstruction Plan and the limited availability of other European funds remain valid. So is the risk of Russia's aggression against Ukraine. Therefore, further zloty appreciation will require support from the monetary policy. Especially now, when the US Fed is about to start raising interest rates in the US, and the likelihood of a rate hike in the euro zone in 2022 has increased last week. The market must be convinced that the cost of money in Poland will increase to a minimum of 4% in order to continue to play for the strengthening of the zloty, and the EUR / PLN rate could permanently stay below PLN 4,50.