Bulls in the Polish forex and fixed-income markets took a rest at the end of the last week, waiting for a key monthly report to be released today and announcing the March inflation data.
In our opinion, year-on-year inflation rate in Poland likely fell further to 1.2% in March, with the month-on-month price level up 0.4%. According to our forecasts, food prices (+0.9% m/m) rose slightly faster than usual in this season. By contrast, a significant drop in oil prices probably curbed a rise in transport prices (+0.8% m/m) last month. A seasonal increase in clothing and shoe prices (0.9%) also contributed to the significant month-on-month price rise.
Should the year-on-year inflation fall further following today’s CPI release, the Polish interest rates would become even more positive in real terms (adjusted for inflation), which would raise attractiveness of Polish government bonds to foreign investors. This might not only extend bullish run of the latter, but also strengthen the zloty. Such market development could imply lower inflation pressures and convince the NBP to cut their key rates again. However, in our view, such a scenario is not the most probable one for the moment, and hence we still bet on NBP rate stability – at least until the next inflation forecast by the central bank is released in July.