ING’s Frantisek Taborsky expects the National Bank of Poland (NBP) to keep rates at 3.75% through year-end, with easing delayed until policymakers gain confidence on inflation. He highlights a narrowing rate differential, stronger Dollar and recent EUR/PLN gains toward 4.29–4.30, arguing that potential rate-cut signals could create further upside for EUR/PLN as the debate intensifies after summer.

Rate cut debate and zloty pressure

"The National Bank of Poland will likely leave rates unchanged at 3.75% today, which is our baseline until the end of the year. More interesting today will be the new NBP forecast and statement and tomorrow's press conference. The easing cycle in Poland was interrupted by turmoil in the Persian Gulf, but policymakers will require greater confidence in a favourable inflation outlook before resuming monetary easing."

"So far, the decline in inflation has largely been driven by normalising oil prices and unexpectedly sharp falls in food prices. Core inflation remains close to 3%. Moreover, fiscal measures aimed at reducing petrol and diesel prices, including lower excise duties and VAT rates, expired at the end of June, pushing fuel prices higher at the start of July."

"The July macroeconomic projection is likely to present a favourable medium-term inflation outlook, but we believe policymakers will need several months to convince themselves that the economy is avoiding lagged inflation effects of energy or supply chain shocks, especially on the core CPI side. While Governor Adam Glapiński may strike a somewhat dovish tone at Thursday’s press conference, the debate over potential rate cuts is only likely to gather momentum after the summer."

"The market is pricing in around 10bp of rate cuts after pricing out several rate hikes in recent weeks. The narrowing rate differential and outperformance of front-end rates vs CEE peers, together with a stronger US dollar, have led to pressure on the zloty, which has underperformed CEE peers in recent weeks."

"We focused a lot on the zloty last week here and mentioned that after reaching 4.290-300 EUR/PLN the central bank will decide on the next direction. That moment is coming now and the question is whether the central bank will indicate a rate cut this year or not, which creates further upside for EUR/PLN in our view."

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