ProStream: Zloty may continue to weaken in the coming months
The deep interest rate cut by the Monetary Policy Council (RPP) on Wednesday sharply weakened the zloty already in the first minutes after the announcement of the changes and it is possible that it will continue to weaken in the following months, forecasts Tomasz Kudela, an analyst at ProStream - a currency exchange platform for companies.
The zloty ends the week above 4.6 against the euro and above 4.3 against the dollar. A month ago, the dollar cost below PLN 4 and the euro cheapened to 4.4. We can forget about such rates against the main currencies for the time being, the analyst estimates.
"At the beginning of this year, we forecast the zloty-euro exchange rate at 4.6 at the end of 2023. After the RPP's latest decision, which unexpectedly cut the main rate by 75 bps to 6%, it may indeed reach this ceiling. Such a deep and unexpected rate cut already in the first minutes after the Council announced the changes has sharply weakened the zloty and it is possible that it will weaken in the following months," Kudela said.
The zloty depreciated sharply on Wednesday. The EUR/PLN exchange rate ended the session at around 4.57 and USD/PLN near 4.26
Both markets and economists did not expect a reduction on such a scale.
As highlighted by ProStream, the president of the National Bank of Poland (NBP) and chairman of the RPP Adam Glapinski at a press conference on Thursday explained the rate cuts by rapidly falling inflation, which is already in single digits in September, and, a new element in the NBP's communication, pointed to the rapidly deteriorating situation in our major trading partners, which could have a negative impact on the Polish economy.
The NBP chief's argumentation was unlikely to convince markets. During the conference, the zloty fell against the euro to 4.63. The dollar cost PLN 4.33, it was announced.
According to ProStream, the RPP's decision came in an unfavourable macroeconomic environment for the zloty on global markets, where the risk-off trend is still strong, weakening emerging market currencies. The dollar is benefiting from this.
"Sentiment for the US currency remains favourable. The ISM index was published on Thursday, rising for the second month in a row and is the highest in six months," - Kudela said.
As a result, speculation about a rate hike by the Fed in the autumn has resurfaced again. At the next meeting, on 20 September, it is unlikely to happen.
"The market gives such a scenario less than a 10% chance. But on 1 November a hike could already happen. Here the market is pricing the chances at 40," the analyst from ProStream pointed out.
The issue of policy tightening is also weighing on the eurozone. The markets' attention was drawn to a statement by Peter Kazimir of the ECB, who said that markets should not downplay the possibility of a hike at next week's scheduled meeting.
"Data coming out of the EU in recent weeks indicate that additional monetary tightening may be required. We expect a 25bp hike," Kudela added.
Source: ProStream and ISBnews