Polish Zloty: NBP caution keeps Zloty under pressure – Commerzbank
Commerzbank’s Tatha Ghose expects Poland’s NBP to leave its base rate at 3.75%, despite what he views as underlying inflation risks masked by temporary fuel tax cuts. He warns that administrative interventions should be ignored by monetary policy, and argues that NBP inaction risks leaving Polish policy behind the curve, with the Zloty likely to stay under pressure.
Underlying inflation risks for Zloty
"Poland’s National Bank (NBP) will announce its November monetary policy decision this afternoon: the analyst consensus nearly unanimously forecasts that the base rate will remain unchanged at 3.75%. As usual, tomorrow’s press conference and new NBP projections will hold more interest than today’s rate decision itself."
"Nevertheless, it is worth pointing out that October’s apparent CPI weakness was responsible for delaying rate hikes. But, it should not. Headline inflation slowed to 3.5%y/y from 4.1%y/y in September, but this slowdown occurred only because of well-known administrative fuel-price adjustments (the government lowered VAT on fuel to 8% from 23% and reduced excise duties to EU minimum levels; passenger fuel prices consequently fell by 9.7%m/m). Such a development is temporary tax intervention, not genuine disinflation."
"Monetary policy should ignore such administrative intervention and target the preceding acceleration to above-target underlying inflation. Raw energy and commodity-price pressures remain elevated, the labour market is still tight, and the fuel support is currently scheduled to expire at year-end. The upcoming inflation projections may clarify some scenarios, but cannot resolve uncertainty surrounding future government interventions, regulated tariffs or political developments."
"In our view, NBP’s inaction risks pushing Polish monetary policy behind the curve; the zloty will, therefore, remain under pressure."
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