ING strategist Frantisek Taborsky notes Polish inflation fell to the National Bank of Poland’s 2.5% target, with broad price declines and stable core inflation. Markets have priced out hikes and begun to price cuts, which he says could pressure market rates and weaken the zloty. EUR/PLN has tested 4.300 resistance, with potential upside if the NBP signals openness to cuts.

NBP outlook and rates weigh on zloty

"Yesterday's June inflation in Poland brought another surprise to the downside, with a decrease from 3.1% to 2.5%, exactly the target of the National Bank of Poland."

"Although food prices were the main surprise to the downside in May, in June we saw a decrease across the entire basket, but food again remains the main factor. Core inflation is unlikely to have changed much, with our estimate between 3.0-3.1%."

"The market has priced out all rate hikes and now dovish numbers support pricing rate cuts with around 10bp priced in the longer term."

"We still expect some deterioration in inflation towards the end of the year, which should leave the National Bank of Poland policy rate unchanged for a longer period."

"But in the meantime, we can see pressure on lower market rates which should further undermine the zloty's strength."

"EUR/PLN tested 4.300 as we expected, but for now this level remains strong resistance."

"If the NBP indicates openness to a rate cut next week, it could be a signal for EUR/PLN to continue higher."

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