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2021/12/06 / Erste Group Research

Poland Weekly Focus | By how much will rates go up this time?

National Bank of Poland to continue raising rates. We expect a 75bp hike to 2.0% due to size of inflation surprise in November. However, smaller increase cannot be ruled out. NBP will not hold QE tender in December. Zloty pared recent losses and moved to 4.60 vs. EUR.

December 8 | National Bank of Poland to continue raising rates. Following a 40bp rate hike to 0.5% in October and another increase by 75bp to 1.25% in November, we expect the National Bank of Poland to continue tightening monetary conditions. Flash inflation surged to 7.7% y/y in November, well above market expectations of 7.3%. Therefore, given the size of the inflation surprise in November, another 75bp increase to 2.0% seems the most likely scenario at this week’s rate-setting meeting. The markets are expecting a hike of 50bp. The NBP might argue in favor of a smaller rate hike, given the recently presented anti-inflation shield, risks related to the new coronavirus strain, recent visible appreciation of the zloty and decrease of oil price on the global markets as well as slowing economic growth.

Bond market drivers | QE coming to end? Over the course of the week, the long end of the LCY curve fluctuated around 3.2%, while the 2Y yield climbed up by almost 35bp and returned to around 3.0%. The spread against the 10Y German Bund widened once again toward 360bp. QE programs seem to be coming to an official end in the CEE region, which could increase the pressure on the long ends of curves. Although the National Bank of Poland has already significantly lowered its bond purchases in recent months, it did not schedule a QE tender in December for the first time since the launch of the program. However, the NBP does not rule out future operations, if required by the market situation.

FX market drivers | Zloty strengthened visibly. The increased volatility and the emerging market sell-off caused by the arrival of the omicron variant were short-lived. The Polish zloty moved to 4.60 vs. the EUR, supported by a swing in the central bank’s rhetoric and verbal interventions in favor of a stronger zloty. Following a change in Jerome Powell’s view on inflation, Governor Glapinski also no longer sees it as transitory. He said that the central bank will bring inflation to ‘minimum levels’ without triggering high unemployment. Moreover, after the publication of flash CPI for November, which again surprised markets to the upside, the governor said that there is still room to raise interest rates, but ‘it is not unlimited’.

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General information

AuthorErste Group Research
Product nameCEE Country Update
Topic in focusMacro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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