Furthermore, in his assessment, if inflation begins to exceed the upper bound of the inflation target or if NBP forecasts show such a scenario, the Council will take appropriate decisions by raising the cost of money. At the same time, another rate cut is very unlikely under current conditions. Final decisions will depend on incoming data, which means maintaining a wait-and-see stance.
Especially since President Glapiński pointed to factors reducing the risk of a wage spiral. These include lower domestic demand than in 2022, a more balanced labour market situation, lower wage pressure, and higher interest rates in the event of a shock. Tightening the narrative, in our view, does not imply rapid rate hikes. The MPC has room to observe the situation and act flexibly. Especially since the zloty remains strong, and gas and coal prices are much lower than in the 2022 shock.
From this point of view we maintain a scenario of rate stabilization until the end of this year. However, we note that the risk of hikes will increase as the conflict extends and the Strait of Hormuz closes.
This will translate into stronger secondary shock effects on the energy commodity market and consequently an increase in core inflation above the upper deviation limit from the inflation target.
From this point of view the key for the MPC will be the July macroeconomic projection. If by then the Strait of Hormuz remains blocked, the probability of rate hikes in the second half of the year will rise significantly.
EURPLN rate remains stable, below 4.23
Sessions overseas and in Asia ended with index declines. The United States is waiting for Iran’s response to the proposal to reach an agreement. The Wall Street Journal reported that the operation allowing commercial ships to transit the Strait of Hormuz “Project Freedom” could resume this week after Saudi Arabia and Kuwait lifted restrictions on using bases on their territory.
The U.S. International Trade Court ruled on Thursday that the 10% global tariff introduced by President D. Trump in place of tariffs previously lifted by the Supreme Court is illegal and ordered the suspension of fee collection, which could be an optimistic signal for global growth and lower inflation.
The EURPLN rate remains stable at a fairly low level slightly below 4.23. The EURUSD rate is near 1.173. Morning data on German production disappointed (down 0.7% m/m), although exports were slightly better. Today's non-agricultural employment data in the U.S. will move towards a weaker dollar and lower yields in base markets. The S&P rating decision will have little impact on the domestic market.
The zloty strengthened against the euro to 4.224 from 4.232
On the domestic equity market, after earlier gains, there was consolidation and index declines of about 0.2-1%. In financial markets moderate optimism persists due to hopes for de-escalation in the Middle East. The zloty strengthened against the euro to about 4.224 from about 4.232, near the lower bound of the range we assumed yesterday.
Domestic interest rate market
In the domestic interest rate market, the start of the session was marked by a slight decline in rates, continuing the trend from Wednesday with falling oil prices and similar changes in base markets.
At the end of the day after the NBP President’s conference, which was held in a hawkish tone, rates rose and short-term yields returned to near opening levels, while long-term yields ended the day lower. At the end of the day the 10‑year bond yield was about 5.60%.
The Ministry of Finance announced that at the 8 May auction it will offer 46‑week bills worth 3-6 billion zloty.
United States awaiting Iran’s response
On European equity markets, indices fell by about 1-1.5%. Contracts on U.S. equity indices recorded slight gains, while European indices fell. Investors await new information on the possibility of an agreement between the U.S. and Iran. The United States is waiting for Iran’s response to the proposal to open the Strait of Hormuz and end the war.
According to Axios, both sides are moving towards an agreement. The preliminary agreement document would open a 30‑day negotiation period on details such as opening the Strait of Hormuz, limiting Iran’s nuclear program, and lifting U.S. sanctions. Iran would also cease uranium enrichment and hand over accumulated U.S. stockpiles.
Additionally, NBC reported that the “Project Freedom” program was suspended after Saudi Arabia denied U.S. forces access to its bases and airspace. Reuters reported that the conflict parties are also considering a short‑term ceasefire without resolving key disputed issues.
Oil prices fell to about $97
Oil prices fell to about $97 from about $101 per barrel of Brent, and the euro slightly gained against the dollar to about 1.178 from around 1.175, due to improved sentiment about the Middle East situation. The euro was also helped by better‑than‑expected March retail sales data (slowdown to 1.2% y/y from 1.7%). The rise in the EURUSD rate was hindered by slightly better‑than‑forecast U.S. unemployment data.
On base debt markets, there were small changes. German Bund yields fell by about 2 basis points over the days, but at the end of the session returned to near opening levels.
The decline in U.S. bond yields was larger, but later yields returned above opening levels. At the end of the day the 10‑year bond yield was about 3%, and U.S. 10‑year yields about 4.37%.
