NBP delivered a 25 bps cut...and further easing in January is (almost) warranted

On Wednesday, the Central European currencies edged higher and confirmed its currently weak negative correlation with the EUR/USD currency pair. While the koruna has so far failed to return below the resistance at EUR/CZK 25.20, the zloty was flirting with EUR/PLN 4.12 (resistance and 55 days average).

Yesterday, the eye-catcher was the meeting of the National Bank of Poland (NBP). In line with prevailing expectations, the Polish central bankers decided to cut interest rates for the second time in a row by 25 basis points (bps). Moreover, the NBP president Marek Belka signalled at the press conference that another 25 bps cut (on January 9 next year) was warranted. Asked about the scale of the cycle, Mr. Belka reiterated that the majority of the Monetary policy council (MPC) preferred to keep real interest rates positive and also said that unless the situation in the Polish economy worsened dramatically, the easing would be gradual. The council will most likely apply an approach similar to that adopted during the 2011 monetary tightening, i.e. several consecutive rate changes by 25 bps each. In our opinion, there is room for two such cuts delivered in January and February 2013.