On Wednesday, Central European currencies gained support on rising eurozone hopes and well illustrated investor’s rising appetite for risky assets. EUR/CZK cross rate drifted to 24.66 and the zloty was even trading at the strongest level in one month.
The Monetary Policy Council member Zita Gilowska warned yesterday that the zloty might become a target for speculators at the end of the year due to the fact that Polish authorities are expected to intervene in favor of the zloty in order to keep a debt-to-GDP ratio between 55% threshold. According to the information of Poland’s FinMin, 28.4% of state treasury debt was denominated in foreign currencies in July this year.
The September inflation likely fell slightly to 4.2% y/y. We expect a seasonal increase in food prices (0.7% m/m) for the first time since May (their weight in the consumer basket is 24%). Likewise, the transportation sub-index, which should primarily reflect the weaker Polish currency (the zloty has depreciated by nearly 9.5% m/m against the US dollar), should contribute to inflation which remains well above the target of the National Bank of Poland. We do not expect inflation to fall significantly until December, when we may come back below 4% for the first time in ten months.