Afternoon analysis 18.03.2016:
The euro dropped after two-day rally. Comments from the MPC without influence on the zloty. The MPC may alter its stance if the economic situation deteriorates.
Wednesday's statement of the Fed resulted in positive reaction of the markets. The US central bank was more dovish than expected as it forecasts only two interest rate hikes this year. In December the Fed expected four hikes.
On Friday the sentiment in the stock markets remained positive. Commodities kept recent gains, but the growth rate was lower. Similarly, the emerging market currencies remained at local highs.
In contrast, the EUR/USD dropped on Friday. The move was due to comments of Peter Praet from the ECB who said the rates may be lowered if the economic situation deteriorates. As a result, the euro posted losses after two days of gains.
The zloty remained at local highs
After two days of strong gains on Friday the zloty stabilized at local highs. Recently the zloty gained after the Fed and the ECB presented more dovish stance. This factor supported other emerging market currencies.
Economic data from Poland was less important. All major reports concerning the labor market, retail sales and industrial production exceeded the expectations. The data confirmed an ongoing expansion. However, the inflation number are cumbersome. The consumer inflation rate and the PPI index all missed the forecasts.
However, the MPC said the low price growth is due to external factors and it doe's not negatively affect the economic growth. As a result, the probability of interest rate cuts is very low. Only severe deterioration of data would push the MPC to alter its stance. A similar scenario is not very likely.
Jerzy Żyżyński, a new member of the MPC, presented a somewhat dovish stance. He said that there is some room to cut rates, approximately by 50 basis points (according to PAP). He said deflation is a negative factor and prices should increase 1-1.5 percent on a yearly basis. However, is view is not prevailing in the MPC.
Łukasz Hardt from the MPC is more close to the consensus. He said that the most probable scenarios for interest rates is stabilization (according to PAP). The MPC wants to have tools to react in case of unexpected slowdown. And if the MPC cut rates, it would not be able to address such event.
The major central banks moved to more dovish stance. This factor supported rebound in commodity markets and in the emerging market currencies. Given the situation, the zloty may stabilize with tendency to appreciation.
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