Since rates are lower, the interest rates on bonds issued by the State Treasury will soon be lower. This should discourage investors who prefer higher rates to lower ones. However, here the market behaved differently. Instead of weakening, the zloty strengthened. Both against the euro and the dollar.
PLN exchange rate to euro and dollar
It gains 0.7% against the dollar, and the exchange rate was set at PLN 3.6701 per dollar, and also 0.7% against the euro. with the exchange rate of PLN 4.2662.
Why this reaction? The MPC decision is not simply the only event of the day. The second one is media information about the possible surrender of the Iranian armed forces, which were supposed to ask for peace terms. The market, which had previously fled from risky assets, including the zloty, to the dollar, suddenly decided to make a 180-degree turn.
Well, maybe by less than 180 degrees, because on a weekly basis the zloty is still losing 1.2% to the euro and 2.7% to the dollar. What we are seeing on Wednesday is a reaction to earlier declines.
Bond and share quotes
Unfortunately, a similar recovery is not visible in bonds, which may worry Finance Minister Andrzej Domański. Quotations of Polish 10-year bonds show an increase in interest from Friday to Wednesday by as much as 0.3 percentage points. to 5.21 percent The conditions for subsequent tenders may not be favorable, and the government needs a lot of money to fill the budget hole. This may already be visible at the auction on March 20, when the government plans to sell bonds for up to PLN 13 billion.
10-year bonds quotations
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https://pl.investing.com/
There is a positive reaction on the stock market, although it is more about hope for the end of the US/Israel-Iran conflict and less about interest rate cuts. The WIG index is gaining 2.3% and WIG20 2.7%. Looking at the daily quotations before and after the publication of information on rates, it can be assumed that the increase in WIG20 by 87 points feet are responsible for about 20 points.
The largest increases were recorded in the shares of CD Projekt (+4.9%), Alior (+4.2%) and KGHM (+3.8%). On a weekly basis, these three companies lose 0.9% and 6.8% respectively. and 9.4 percent For now, it's a reaction, not a trend.
“The effects of the conflict in the Middle East have probably not been taken into account at all.”
“While a few days ago the cut would not have been the slightest surprise, the markets dynamically withdrew bets on the cut the day before the meeting due to the escalation of the situation in the Middle East. Due to the increase in prices of energy raw materials, concerns about the inflation situation have arisen” – describes Michał Jóźwiak, an Ebury analyst.
“The argument for the cut is the improved inflation outlook, especially core inflation less affected by the energy shock. But also weaker data on industrial and construction production, suggesting weaker GDP growth in 1Q26” – comments Rafał Benecki, chief economist at ING Bank Śląski.
“The MPC will probably take note deceleration of wage growth in January, which means a further decline in services inflation. Also, the March NBP projection will bring a significantly lower inflation path than the November forecasts. We assume that the CEO's comment will be cautious a The Council will shift to a more hawkish stance as it watches the development of the situation in Iran. Target level of the NBP rate may turn out to be higher than the 3.25% we have expected so far“- he adds.
“The war in the Middle East complicated the MPC's task, but ultimately did not stop the monetary authorities from resuming cuts. Equipped with a new inflation projection, the Council, after a two-month pause, reduced the cost of money by 25 basis points,” says Bartosz Sawicki, an Exante analyst.
“Inflation in Poland dropped to 2.2% y/y in January. NBP President Adam Glapiński revealed his cards at the end of February, revealing that in the light of the March projection, CPI dynamics in the coming quarters will remain close to the target. In conditions of enormous uncertainty regarding the development of the situation in the Middle East However, no central bank can afford to underestimate the risk of strong and lasting supply shockspotentially disturbing the favorable inflation situation,” says the analyst.
The analysis department of Bank Pekao estimates that the effects of the conflict have not been taken into account in the projection.
It seems that the Council has decided not to focus on the potential supply shock yet, but instead focused on the inflation projection. Further events in the Middle East will influence subsequent decisions.
Author: Jacek Frączyk, editor of Business Insider Polska
