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“The combination of risk off and higher rates was clearly negative for Polish assets and, if these global trends continue today, we will see a continuation of the sell-off. However, it is worth remembering that so far TS yields and the zloty exchange rate remain within well-defined and recognized ranges of fluctuations. The glass is half full here – the current levels are far from alarming, but at the same time the room for a discount is significant “- Pekao report writes.
Russian President Vladimir Putin announced a partial mobilization in the country, which is scheduled to begin on Wednesday, September 21. He threatened the West with nuclear weapons – in the event of an “attack on Russia’s territorial integrity.” This decision, he said, was made in order to “defend the homeland” and “ensure the security of citizens” both in Russia and in the territories it occupied.
Partial mobilization is to include reservists, people who have served in the army. Before being sent to the front, they are to undergo additional training “taking into account the experience of a special military operation (war in Ukraine)”.
After this information in the morning, the zloty was weakening strongly against the USD and EUR. Approx. time. 9.15 the EUR / PLN exchange rate goes up by 51%. to 4.75072, and USD / PLN gains 1.2%. to 4.79710.
“Partial mobilization is not a turning point, but it confirms that the war over our eastern border will continue to exhaustion. The risk premium in Polish assets goes up,” Pekao economists wrote on Twitter.
Markets await today’s decision of the US Federal Reserve and the latest macroeconomic projections, which will be released at 20.00 Polish time. Fed chairman Jerome Powell’s conference will begin at 20.30.
Markets expect the US central bank to raise interest rates by 75 bp for the third time in a row. in order to fight high inflation. Economists surveyed by Bloomberg expect interest rates to will increase by 75 basis points. Only 2 out of 96 economists surveyed by the Bloomberg agency expect a 100 bp increase in the cost of money in the US.-
“According to the analysts of the Millennium bank, the assessment will be difficult to exceed the current expectations assuming the target level of the Fed rate in the range of 4.25-4.50%. Summing up, we believe that the EUR / USD exchange rate will decline towards 0 in anticipation of the outcome of the Fed meeting. 99, while the EUR / PLN pair will increase to even 4.7450 “- they forecast.
Ch.Lagarde (ECB) said that the ECB’s interest rates must rise quickly and – perhaps – reach a level above the neutral level, to prevent the risk of persistently high inflation in the economy. In her opinion, the fast pace of increases is the key tool through which the ECB shows its determination to bring inflation down to the level of the medium-term inflation target. According to the ECB president, a restrictive monetary policy would become necessary if there was evidence of de-anchoring inflation expectations (currently inflation expectations were considered relatively well-anchored).
The head of the ECB also pointed out that if the potential growth rate of the European economy decreased as a result of the energy shock, it becomes necessary to lower the demand. Signaling that the real scenario is an increase in interest rates above the level considered neutral (i.e. above 2%) is another evidence pointing to further tightening of the ECB stance. An increase in the refinancing rate above 2% would mean that the ECB would at least compensate for the strongest cycle of rate hikes to date, which took place in 1999-2000, and brought them up by 225pp.