Afternoon analysis 18.03.2016

The euro dropped after a two-day rally. Comments from the MPC are without influence on the zloty. The MPC may alter its stance if the economic situation deteriorates.

Wednesday's statement of the Fed resulted in a positive reaction from 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 their recent gains, but the growth rate was slower. Similarly, the emerging market currencies remained at local highs.

In contrast, the EUR/USD dropped on Friday. The move was due to the 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 a 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 numbers 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 does not negatively affect the economic growth. As a result, the probability of interest rate cuts is very low. Only the 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 by approximately 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, his view is not prevailing in the MPC.

Łukasz Hardt from the MPC is closer to the consensus. He said that the most probable scenarios for interest rates are a stabilization (according to PAP). The MPC wants to have tools to react in case of an 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 as well as in the emerging market currencies. Given the situation, the zloty may stabilize with a tendency to appreciation.