Zloty eases, central bank seen cutting CPI forecast

BUDAPEST: The zloty mildly eased on Tuesday ahead of a likely cut in the Polish central bank's inflation forecasts at its monthly meeting, where it is expected to keep interest rates on hold.

The zloty traded close to 4.3 against the euro, a psychological line and also its 200-day moving average.

The Polish central bank (NBP) has become Central Europe's most dovish central bank since a shift towards a more hawkish rhetoric by the National Bank of Hungary in January.

The NBP has kept its main interest rate at a record low 1.5 percent for four years,

The zloty has moved in a tight 2 percent range against the euro since July last year.

It was almost motionless for months before low inflation figures weakened it to 4.3455, before a government spending increase plan announced late last month boosted it 4.294 by Monday.

After several dull meetings, there is a chance that Tuesday's comments from the bank "will be way more interesting than usual", Santander Bank Polska analysts said in a note.

Poland's annual inflation ran at 0.9 percent in January, well below the NBP's 1.5-3.5 percent target range, and the bank could cut its inflation forecasts at the meeting, analysts said.

However, the comments of rate setters have turned more hawkish since the ruling nationalist PiS party, preparing for elections, announced its spending plan.

Overall, the NBP's bias are unlikely to change, the Santander analysts said.

"We do not expect governor Glapi?ski to withdraw his declaration of stable rates until 2020... and the overall tone of his comments will remain dovish," they said.

The rate-setting panel is dominated by doves, but the bank may need to face growing demand-led inflation pressure due to the fiscal plans, Rabobank analyst Piotr Matys said in a note.

"Any indication during today's press conference that the commitment to maintain record low interest rates seems to be fading amongst Polish rate setters would be a hawkish signal that could potentially provide the zloty with support," he added.

Polish government bond yields were either steady or tracked German peers lower by 1-2 basis points, with 5-year papers trading at 2.265 percent.

Elsewhere, Romania led a rise in equities in the region.

A continuing rebound in Banca Transilvania stocks helped Bucharest's main index rise half a percent to its highest level since the Romanian government announced controversial new taxes on banks and energy firms.

Romanian stocks got a boost this week from hopes for changes in the taxes and in highly contested new share capital requirements on private pension funds whose managers met Romanian official on Tuesday to open discussions about the issue.