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The National Bank of Poland (NBP) seems to have informally introduced an FX target of around 4.50 and increased the focus on economic growth. Economists at Danske Bank believe the NBP will seek to maintain the EUR/PLN around current levels until the crisis is over, by mid-summer at the earliest. As a result, they raise the profile for EUR/PLN to 4.50 in one-to-three months and then as recovery gets underway see the cross falling to 4.40 in six months and 4.35 in 12 months.

Key quotes

“The NBP had a negative surprise for the PLN for Christmas, as the central bank intervened in the FX market to weaken the PLN. The intervention aimed to strengthen the impact of looser monetary policy on the PLN and the Polish economy as a whole. This sent the EUR/PLN even higher, supported by comments from Monetary Policy Council (MPC) member Grazyna Ancyparowicz, who went as far as saying the ‘optimal’ EUR/PLN rate to support the Polish economy was ‘4.50 or higher’.”

“With the new FX and economic growth focus, the NBP is moving towards the Hungarian central bank’s dovish approach. However, we have difficulty seeing the reasons for the NBP’s desire to weaken the PLN. Industrial production and employment remain relatively strong, supported by newfound global manufacturing strength. With the rollout of vaccines, there is light at the end of the tunnel, as we expect the global and Polish economy to see stronger growth from Q2 onward.”

“Our base case would not be a cut in the central bank’s policy rate. The governor has backtracked somewhat and there are other MPC members that are clearly against cutting interest rates.”

“We believe that the central bank will stick to its new signal and prevent a sharp strengthening of the exchange rate in the short-term. In our view, a new range for EUR/PLN may be formed in the coming months (Q1 at least) at 4.48-4.60 but as the recovery in Poland and globally strengthens during the spring, we believe the central bank will be more open to letting the PLN strengthen and, therefore, we could see the EUR/PLN falling to 4.40 in six months and 4.35 in 12 months.”