Commerzbank’s Tatha Ghose argues that weak January Polish data strengthen expectations for a 25 bp rate cut at the March MPC meeting. Manufacturing and construction output disappointed, PPI deflation deepened, and wage growth slowed, reinforcing the National Bank of Poland’s optimistic inflation signals and suggesting the Zloty may underperform peers in coming months.

Soft activity and prices weigh on Zloty

"Further to our earlier commentary on the Polish monetary policy outlook, fresh January data strongly reinforce the likelihood of a 25bp rate reduction at the upcoming March MPC meeting."

"In January, overall manufacturing output widely missed expectations and declined noticeably, not the least because of an unexpected 12.8% y/y fall in construction; the downturn was attributed to unusually cold weather, with output falling in 21 of 34 tracked sectors, but let us not forget that a longer-term trend decline (in absolute level, not only growth rate) has been in place across the region since after a temporary post-pandemic bounce."

"Furthermore, PPI deflation deepened to -2.6% y/y in January, exceeding consensus expectation and marking the largest decline since December 2024."

"Such disinflationary developments, particularly the weak manufacturing and slower wage growth, make a March rate cut even more likely than before, which means that the zloty could continue to underperform peers in coming months unless, of course, the Hungarian central bank produces an even more dovish swing next week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)