MPC cut rates by 25bp for the fourth successive month in February, to 3.75% from 4.00%, in line with consensus and our forecast. As expected, the Council did not make a pause in monetary easing faced with December’s significant drop in inflation to below the NBP target, sharp decline in industrial output, negative retail sales reading and, last but not least, the 2012 GDP figure, confirming that Polish economy visibly lost steam in 4Q12. Key for the markets later today will be the post-meeting statement and MPC members’ comments at the press conference (scheduled at 4:00 p.m. CET). In January the MPC changed its statement indicating that the easing cycle might soon go on hold.
Also governor Belka said during January’s conference that the Council could soon pause easing. Still, in his later address to the Senate in late January, Belka said that MPC may continue monetary policy easing. Taking into account the weakening of the macro environment and drop in inflation still ahead it seems likely the MPC will today leave door open for further rate cuts. In our baseline scenario we now look for another 25bp rate cut in March. If the Council suggests more easing possible ahead we expect the zloty to weaken today to above 4.20/EUR. On the other hand, a hawkish tone of the statement and/or MPC comments firmly underlining the possibility of a pause in cuts in March could strengthen PLN towards 4.15/EUR. The zloty currently trades at 4.1860 as of 1:20 p.m. CET, around today’s opening level and below 4.1990/EUR just before the MPC announced its decision.