In line with general expectations, the National Bank of Poland (NBP) decided to keep interest rates unchanged at 4.5% level. The main arguments were more or less clear in advance - on one hand, the economy is slowing, but on the other, weaker zloty fuels inflation which remains far above the target - and the NBP president Marek Belka reiterated these at the press conference. He might have slightly disappointed that part of the market, which bets on a rate cut in 2012 (FRA’s indicate about 25 bps cut in 6 months horizon, see the chart). He said that the central bank was monitoring the expected economic slowdown, which might be milder than expected, and therefore the likelihood of interest rate cuts was decreasing. Unlike the market, we expect that the reference rate can stay unchanged over 2012.
Regarding the zloty exchange rate, Belka said the NBP remained ready to curb its excessive volatility and that he saw a room for the zloty’s appreciation. We estimate that the EUR/PLN cross rate might stay close to 4.50 level in the first quarter and could gradually strengthen throughout the year. As far as the purchasing of Polish bonds by the NBP, the Monetary Policy Council stressed it is not allowed to purchase Treasury securities as monetary policy instrument.
Today, the regional calendar is empty. The markets will thus focus (apart from ongoing HU/IMF talks) and on the ECB meeting (more on the meeting here). Apart from the decision on rates itself, a lot of ground will be covered in the press conference. On the subject of the ECB playing the role as lender of last resort, we don’t expect any evolution. Therefore, we expect that some kind of nervousness might come back to the CE markets.