November inflation should show a further decline in headline inflation from 2.8% to 2.5% in our forecast, one-tenth below market expectations. Core inflation should also fall slightly from 3.0% to 2.9% YoY. This should pave the way for another rate cut by the National Bank of Poland next week. However, we believe that the market in the current conditions may be more sensitive to potential surprises than usual. The last two weeks have seen the market move rates down, outperforming CEE peers, triggering some stop-losses due to paid positioning in the PLN market. The market has thus quickly moved to price in a terminal rate of 3.50%, which is in line with our forecast but above market consensus.
If the inflation print surprises upwards, we could see new payers in rates as the view is that more rate cuts cannot be priced in and potentially higher inflation in the future. On the other hand, weaker inflation would simply confirm the current dovish trend. The market is therefore asymmetric, in our opinion, towards higher rates and potentially support for FX. Therefore, PLN has a good chance of further gains, especially if we see some progress in peace talks between Ukraine and Russia. The 4.230 levels are the bottom of the current range, but we have already seen testing lower levels in previous days and especially an upside surprise in inflation would be key to breaking lower.
Frantisek Taborsky
