TMS Commentary
Some analysts had stepped out on a limb to voice speculation that the MPC could raise the rates by 50 bp, however, a drop in the monthly Consumer Price Index convinced the market that the rise would be pegged to just 25 bp. It is an understatement to say that the MPC took the market by surprise - again - with a 50 points move. This 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 MPC's decision. The zloty dropped aggressively and quickly as a result of a foreign hedging fund closing its positions. Experts have set our maximum currency trading rates at 4.500 for EUR/PLN and 3.720 for the USD/PLN. If those levels are exceeded then the PLN's value will lose even more.
Analysts were left equally stunned by the shock announcement.
But let us look at the grounds of the MPC'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 not GDP growth. MPC justifies higher rates with raising CPI expectations. What the MPC 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 MPC to continue this restrictive policy till the end of December. Uncertainty amongst investors increases the volatility on the market. It is worth remembering that at the end of August MPC members will present their CPI projection. Let us hope it will explain the mysterious MPC decisions. The Minister of Finance was amongst 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 9th September to discuss the next budget framework. The head of the Ministry of Finance is only concerned about the lack of clarity in the reasons behind the MPC decision
Analysts were left equally stunned by the shock announcement.
But let us look at the grounds of the MPC'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 not GDP growth. MPC justifies higher rates with raising CPI expectations. What the MPC 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 MPC to continue this restrictive policy till the end of December. Uncertainty amongst investors increases the volatility on the market. It is worth remembering that at the end of August MPC members will present their CPI projection. Let us hope it will explain the mysterious MPC decisions. The Minister of Finance was amongst 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 9th September to discuss the next budget framework. The head of the Ministry of Finance is only concerned about the lack of clarity in the reasons behind the MPC decision
