Polish CPI and current account balance will be released today at 13:00. Inflation is expected to accelerate to 4.5% y/y in Nov. from 4.3%. Meanwhile, the current account balance should post another large deficit of EUR1.9bn in October.
The combination of a high inflation and large current account deficit (about 5% of GDP) is not PLN-supportive. EUR-PLN is under strong upside pressure and may rise up to 4.60 (April 2009 high). However, the risk of FX intervention is strongly on the rise. As the year-end is approaching, Poland needs to protect its currency for the debt calculation. The government assumed EUR-PLN at 4.35 for year-end to maintain the debt to GDP ratio below the threshold of 55%. Even with a slightly higher EUR-PLN, the debt target wouldn’t be threatened. Nevertheless, Poland has not the luxury to let the currency getting out of control. The MoF (debt target) and the NBP (inflation target) have common interest to intensify interventions in order to contain EUR-PLN rise.
An interesting way to play this “intervention story” is to be long PLN-CZK. The CNB is indeed happy with a weak currency as it eases monetary conditions without cutting the already extremely low repo rate. PLN-CZK is also at attractive levels.
M. Toprak – EMEA FX Strategy
HSBC Global Research