Expert's reaction
Recall that previous forecasts and expectations had tipped a hike of 25 basis points. Some analysts had gone out on a limb to voice speculation that the RPP could raise the rates by as much as 50 bp, however a drop in the monthly Consumer Price Index (CPI) convinced the market that the rise would be pegged to just 25 bp. To say that the RPP took the market by surprise - again - with the 50 point move, would be an understatement.
The decision caused a lot of confusion. Firstly, the zloty gained in value decisively. The EUR/PLN rate fell to 4.4000 while USD/PLN to 3.6400. The appreciation of domestic currency did not last long and by the end of the day the rates returned to levels seen prior to the RPP's decision. The zloty dropped aggressively and quickly as a result of a foreign hedging fund closing its positions.
Technically EUR/PLN targets 4.5000 and USD/PLN 3.7200. If those levels are exceeded then the PLN's value will lose even more.
Analysts were left equally stunned by the announcement.
But let us look at the grounds for the RPP's decision. First of all, the head of the Polish Central Bank stressed the determination to keep CPI at a low level. The Council showed once again that it mainly cares about inflation and not GDP growth. The RPP justifies higher rates with raising CPI expectations.
What the RPP is planning to do at forthcoming meetings is extremely interesting and analysts are not unanimous in their predictions. Some reckon that there will be no more hikes this year but a few still expect the RPP to continue this restrictive policy till the end of December.
Uncertainty among investors increases the volatility on the market. It is worth remembering that at the end of August RPP members are to present their CPI projection. Let us hope it will explain the mysterious RPP decisions. Minister of Finance Marek Gronicki was among the few who were not surprised by a 50 bp move. In his opinion it will curb future inflation and help meet the state budget CPI expectations. The government is holding a meeting on September 9 to discuss the next budget framework. Gronicki is only concerned about the lack of clarity in the reasons behind the RPP decision.
By Marek Zuber
chief economist TMS
Supplied by Treasury Management Systems www.tms.pl
The decision caused a lot of confusion. Firstly, the zloty gained in value decisively. The EUR/PLN rate fell to 4.4000 while USD/PLN to 3.6400. The appreciation of domestic currency did not last long and by the end of the day the rates returned to levels seen prior to the RPP's decision. The zloty dropped aggressively and quickly as a result of a foreign hedging fund closing its positions.
Technically EUR/PLN targets 4.5000 and USD/PLN 3.7200. If those levels are exceeded then the PLN's value will lose even more.
Analysts were left equally stunned by the announcement.
But let us look at the grounds for the RPP's decision. First of all, the head of the Polish Central Bank stressed the determination to keep CPI at a low level. The Council showed once again that it mainly cares about inflation and not GDP growth. The RPP justifies higher rates with raising CPI expectations.
What the RPP is planning to do at forthcoming meetings is extremely interesting and analysts are not unanimous in their predictions. Some reckon that there will be no more hikes this year but a few still expect the RPP to continue this restrictive policy till the end of December.
Uncertainty among investors increases the volatility on the market. It is worth remembering that at the end of August RPP members are to present their CPI projection. Let us hope it will explain the mysterious RPP decisions. Minister of Finance Marek Gronicki was among the few who were not surprised by a 50 bp move. In his opinion it will curb future inflation and help meet the state budget CPI expectations. The government is holding a meeting on September 9 to discuss the next budget framework. Gronicki is only concerned about the lack of clarity in the reasons behind the RPP decision.
By Marek Zuber
chief economist TMS
Supplied by Treasury Management Systems www.tms.pl
