CEE: NBP presser should support PLN

The National Bank of Poland left rates unchanged as expected. The statement did not change much either. The MPC wants to know more about the new government's fiscal policy and the impact on inflation before its next steps. So the more interesting story today will be Governor Adam Glapinski's press conference. Our economists see stable rates next year, but the story and risks are not so simple.

In addition to the NBP, today we will also see monthly data in the Czech Republic, including industrial production which, like yesterday's retail sales, should confirm the weak economy in the fourth quarter. Also this morning, the second reading of Romania's third-quarter GDP data has already been published.

In the markets yesterday, rates were catching up with the fall in core rates from the previous days across the CEE region, which somewhat undermines the FX picture in general. This is most visible in the PLN and CZK market. In Poland, however, the hawkish NBP should help the currency today. Thus, we may see a weaker zloty this morning but by the end of the day, we should be back to 4.320 EUR/PLN or lower. On the other hand, in the Czech Republic, the CZK remains without the support of the central bank and rates are pointing more towards the 24.40 EUR/CZK levels where we were a few days ago. Moreover, weaker data may support this move higher.

fter the Polish zloty, the Mexican peso has delivered some of the largest total returns over the last month (alongside the Turkish lira!). As we discuss in our 2024 FX outlook, we think the Mexican peso can hold firm - even in the face of rate cuts. On that front, Mexico today releases inflation data for November - where core CPI is expected to drop to a new cycle low of 5.3% YoY.

The market is slowly coming round to the view that Banxico could cut rates in the first quarter - perhaps at the March meeting. Pricing of a Banxico easing cycle looks a little conservative and we think MXN rates could soften if next week's Banxico policy meeting sheds more light on an easing cycle - especially if anyone were to vote for a cut. 

We think MXN gains will be more of a total return story in 2024 - i.e. attractive interest rates but spot USD/MXN not going too much below 17.00. Indeed, Banxico might well be thinking the peso is a little too strong on a real exchange rate basis. But strong fiscal support should see Mexican growth hold up next year. Another reason we think the peso should continue to outperform.