Polish Zloty: Slow NBP hawkish shift weighs on PLN - Commerzbank

Commerzbank's Tatha Ghose reports that Polish headline and core inflation have recently accelerated, with rates now clearly above the target. This has made earlier signals from National Bank of Poland (NBP) Governor Adam Glapinski about possible rate cuts irrelevant. However, as the central bank is turning hawkish more slowly than inflation, this development is viewed negatively for the Polish Zloty (PLN).

Polish CPI inflation reached 3.0% year-on-year in July from 2.5% in June, matching the initial forecast. The surge was primarily due to fuel prices, which jumped by 13.9% month-on-month, pushing the annual fuel inflation rate to 15.8% from 5.3% in June. Core inflation also increased, with the main core indicator accelerating to 3.1% in July from 3.0% in June.

The trimmed mean remained at 2.8% and other core measures accelerated, with the index excluding regulated prices reaching 2.8% and the one excluding volatile prices climbing to 3.4%. While the year-on-year summary is not the main point, the more relevant seasonally-adjusted month-on-month rates of increase have sharply intensified during June and July and are now clearly above target.

This means that NBP Governor Adam Glapinski's earlier suggestion that rate cuts may soon occur should now be considered obsolete. The situation is unfavorable for the zloty because inflation is rising faster than NBP is becoming more hawkish; NBP may only signal unchanged rates for a longer period, which might not satisfy the foreign exchange market.