The Polish zloty outperformed its peers on Friday and later in the afternoon was trading barely changed from a day ago while both the forint and the koruna slightly weakened. Fitch move might have supported the zloty - the agency revised its credit outlook for Poland to positive on Thursday’s evening.
Today, Poland will remain in focus as the statistical office releases figures on January retail sales which is one of the latest piece of data to be released ahead of the central bank’s March meeting (03/06). Our model likelihood of a rate cut, based on changes in employment and in the inflation expectations, is on the rise, due in particular to the falling inflation expectations. In addition, these expectations may continue to fall until the middle of this year. By contrast, employment is improving, while numerous leading indicators show a rising industrial output after January’s favourable figure. This might encourage the recruitment of new staff and stop further rate cuts. Another argument for the stability of rates is their low level and narrowed latitude for further monetary easing. In 2010, rates stood at 3.5% (as opposed to 3.75% now), the model likelihood of a rate cut was below 20%, just like today, and rates were not cut again. Unless January’s retail sales are a disappointment, we believe that February’s rate cut to 3.75% was the last one, albeit the release of (likely unflattering) data on GDP growth for the last quarter of 2012 may still stir things up.