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NBP will continue interventions in the foreign exchange market

Slight increase in the optimism in the MPC statement

As we expected, the Monetary Policy Council has not changed interest rates today (the reference rate is 0.10%). In accordance with its statement, the MPC expects recovery in economic activity in 2021, the scale of which will depend first of all on the epidemic situation and the related restrictions. Today’s statement does not include, however, a fragment of the December statement about the GDP level expected by the Council in 2021 (“the GDP would probably remain lower than prior to the pandemic”), which shows a slight increase in optimism of the MPC about short-term outlooks for economic activity. Like in December last year, the statement emphasizes the positive impact of the economic policy measures, including the easing of the NBP's monetary policy, on economic activity. The Council maintains, however, its view that higher uncertainty and weaker sentiment of economic agents combined with “the lack of a visible and more durable zloty exchange rate adjustment to the global pandemic shock and to the monetary policy easing introduced by NBP” will limit the pace of economic recovery.

In accordance with the statement, the NBP will continue to purchase government securities and government-guaranteed debt securities on the secondary market as part of the structural open market operations (the value of securities purchased so far has reached PLN 107.1bn).

NBP will continue interventions in the foreign exchange market

The message in the fragment cited above about the unsatisfactory scale of depreciation of the PLN has been reinforced in today’s statement by a direct reference to foreign exchange interventions started by the NBP in December last year. The Council noted that “In order to strengthen the impact of NBP’s monetary policy easing on the economy, NBP may also intervene in the foreign exchange market.The timing and scale of the measures taken by NBP will depend on the market conditions.” This is in line with our scenario in which foreign exchange interventions aimed to weaken the PLN will be continued in the coming weeks, despite the market environment being unfavourable for their effectiveness (global and domestic factors driving appreciation of the PLN). This supports our forecast that in the coming weeks the EURPLN rate will stay above 4.50, and its sustainable and gradual decline below that level will start in Q2 this year.

Interest rate cut remains the baseline scenario

We maintain our scenario, in which the MPC will lower the NBP reference rate from 0.10% to 0.00% in Q1 2021 (most likely in March). That scenario is consistent with severe restrictions we expect to be there in Q1 2021, whose aim will be to reduce the risk of the third wave of the COVID-19 pandemic, and with further interventions in the foreign currency market, whose aim will be to weaken the PLN rate. However, it should be emphasised that recent changes in the way the NBP is communicating suggest that the Polish monetary policy has become significantly less predictable, and there is significant uncertainty regarding how the NBP is going to determine interest rates in the future (see MACROmap of 11 January 2021). Besides, the slight increase in optimism regarding the pace of the recovery in economic activity to pre-pandemic levels indicates that there is a slight upward risk for our interest rate forecast. We still expect that the monetary policy will begin to be tightened in November 2022 (reference rate increase by 0.10 pp). That forecast is supported by a very high GDP dynamics, which is expected in 2022 in accordance with the NBP’s November macroeconomic projections (see MACROpulse of 6 November 2020).

In our opinion, the announcement following today’s meeting of the Council is neutral for the PLN and for the yields of bonds.