The zloty is losing against the dollar in the geopolitical storm. “Let's wait for the end of the war”
On Friday, volatility in currency markets was slightly lower than on some days in the last three weeks, which were marked by the US and Israeli attack on Iran.
In the afternoon, the rate of the key pair, EUR/USD, fell by 0.27%, which meant the euro was weakening. Almost $1,155 was paid for the EU currency. In such conditions, the depreciation of the Polish zloty against the American currency is not surprising: the USD/PLN exchange rate increased by 0.45%. and the price for the “green” one was PLN 3,703. However, the maximum of recent days, i.e. PLN 3.75, is still lower than the dollar exchange rate from a year ago (PLN 3.88). The dollar is the king of the last three weeks.
The zloty also weakened slightly against the euro. In the afternoon, the EUR/PLN exchange rate increased by 0.2%. and PLN 4,277 was paid for the EU currency.
The economy is in a good place to cut rates, but there is a risk of a rebound in inflation
— In Poland, yesterday's data from the Central Statistical Office show that wage growth in the corporate sector is clearly slowing down. The average salary increased by 6.1% in February. y/y, less than the expected 6.6%. , with around 4% real growth thanks to low inflation. At the same time, employment in companies is practically stagnant m/m and falls by approximately 0.8% annually. , which confirms the weakening demand for labor and de facto reduces the risk of a wage-price spiral. These are data that, under normal conditions, build a very good narrative for further, gentle rate cuts – said Mateusz Czyżkowski, XTB analyst.
See also: Salaries in Poland. Will it be harder to get a raise? “It blew cold”
He added that the economy is growing moderately, the labor market is cooling down, and core inflation in the first months of the year came close to the NBP target. — At the moment, however, the Council, in its communiqués and statements of central bankers, signals that the cycle of interest rate cuts is close to the end, because the risk of a secondary increase in inflation caused by energy prices after the Iran shock has become decisive, but perhaps talks about further easing of monetary conditions in the country will return to the table if the conflict ends relatively quickly and does not permanently increase the risk of price increases in the economy – said Czyżkowski.
— As a result, the market, which at the end of February was still expecting further cuts this year, after the outbreak of the war began to price in even the scenario of price increases within a 12-month horizon. At the moment, however, these estimates should be taken with caution, because a lot may change before the next meetings, the analyst noted.
What next with the zloty exchange rate? The MPC narrative, but also geopolitics
There is now one theme in the statements of MPC members: “let's wait for the end of the war in Iran, see if the shock on fuels spreads further, and only then let's return to the discussion about possible cuts.”
See also: The war in Iran and Polish wallets. Economists predict a second-round effect
Both Ireneusz Dąbrowski and Ludwik Kotecki openly suggest that the March reduction could have been the last one this year. Some of the council, such as Wiesław Janczyk, consider the current level of rates to be “appropriate for several quarters”, others, such as Gabriela Masłowska, allow for further downward movements only if there is a clearly lasting, global calming of inflation, and not at a one-time reading. Alone Ireneusz Dąbrowski indicates that the optimal real rate in Poland is approximately 0.5-1 percent. , which with inflation around 2.5%. would translate into a nominal range of 3.0-3.5%. , but at the same time stipulates that war can only prolong the achievement of this level.
— For the zloty, this means that in the short term, external forces currently have the advantage, expensive dollar, more expensive oil, weaker gold and the global market playing to fewer Fed cuts. If the conflict drags on or another escalation occurs, tests of higher levels on USD/PLN are natural in this situation, and each break of technical supports will strengthen the narrative of a permanent change in the long-term trend and accelerate the sell-off through stoplosses and closing carry positions – says the XTB analyst.
He adds that However, if the baseline scenario assuming gradual de-escalation and falling oil prices materializes and the Fed returns to a milder rhetoric, the zloty still has a chance to return to its previous path of strengthening..
