Polish Zloty's Roaring Recovery Crushes GBP/PLN
- Written by: James Skinner, Additional Editing by Gary Howes
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- Global market rebound, NBP policy rejuvenates PLN
- Roaring reverses much of GBP/PLN, USD/PLN rallies
- EUR/PLN also unraveling but could steady near 4.70
- NBP rate outlook may offer ongoing support to PLN
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The Zloty extended a roaring recovery against the Pound, Dollar and Euro into the final half of the week, aided by a continuing rebound across global markets and an increasingly hawkish National Bank of Poland (NBP) interest rate outlook that could be set to offer the Polish currency further support in the days and weeks ahead
Poland’s Zloty was the most heavily sold currency in the weeks after the Russian military crossed its border into Ukraine but it was lifted sharply alongside regional counterparts over Tuesday and Wednesday before receiving an additional tailwind following Wednesday’s NBP press conference.
“There will be more hikes in the coming months. It is difficult to say what the ceiling will be when the rates will reach - of course there is a ceiling that would be unfavorable for the economic situation, the labor market, borrowers or banks. So there is such a ceiling, but it is difficult to say what,” Governor Glapinski told local media.
The NBP already lifted its interest rate by 0.75% to 3.5% on Tuesday, its strongest increase of the current monetary policy cycle, although Governor Adam Glapinski said on Wednesday that there’s no telling how high interest rates will need to go in order to bring down inflation.
Above: GBP/PLN at daily intervals with Fibonacci retracements of late February rally indicating possible areas of technical support for Sterling, and shown alongside USD/PLN.
- Reference rates at publication:
GBP to PLN: 5.6800 - High street bank rates (indicative): 5.4812 - 5.5210
- Payment specialist rates (indicative): 5.6289 - 5.6516
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- Set up an exchange rate alert, here
Poland’s inflation rate rose to 9.2% in January, continuing an almost year-long surge that has taken it far above the NBP’s target of 2.5%, while the bank’s mandate permits deviations of only one percent either side of that number.
“It is our opinion that currently the MPC is more concerned with the intensification of unfavorable price phenomena rather than a sharp downturn. This in turn announces further interest rate hikes. The situation on the currency market may be an additional motivation to continue the rate hikes,” says Marta Petka-Zagajewska, head of macroeconomic research at PKO Bank Polski.
Consumer price pressures were already widely expected to build further during the months ahead due in part to earlier significant increases in oil and gas prices, although with oil having risen close to 30% in the month to Wednesday and gas costs having increased more than 100%, it’s likely that there are further significant increases in inflation ahead.
“The entire Council is determined to bring inflation to a normal level as soon as possible,” Governor Glapinski said on Wednesday.
Above: EUR/PLN at daily intervals with Fibonacci retracements of late February rally indicating possible areas of technical support for Euro.
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The NBP’s inflation challenge may have been made all the larger in recent weeks by the significant sell-off seen in Central and Eastern European currencies following Russia’s invasion of Ukraine, given that falling exchange rates do raise the cost of imported goods.
Poland’s central bank said last week that recent Zloty levels are “not consistent with the foundations of the Polish economy, nor with the direction of the NBP's monetary policy,” and began selling some of its foreign exchange reserves in order to combat the declines.
“The CE3 complex was hit by a rare and harmful combination of cross-border outflows from their local market in equities and FX. In equity markets, investors lowered their real GDP growth forecasts and demanded a rising country risk premium,” writes Nimrod Merovach, a CEEMEA strategist at Credit Suisse, in a Wednesday note.
“The disorderly rally in EURPLN and EURHUF makes it difficult to project new ranges with a high degree of confidence. But for now, our base case view is that EURPLN will remain above 4.75 and that EURHUF will stay above 380 as long as the intensity of the conflict in Ukraine does not abate, and as long as investors continue to take seriously the risk that the EU will follow the US and ban imports of energy from Russia,” Mevorach explained.
