Bank of New York Mellon (BNY) has cautioned that import pass-through risks could challenge the Polish zloty’s outlook and complicate the central bank’s easing cycle, according to a note published this week.
BNY Flags Import Pass-Through as Key Risk for Zloty
BNY strategists point out that Poland’s high reliance on energy and food imports makes the zloty particularly sensitive to global price swings. If the currency weakens further, imported inflation could accelerate, limiting the Narodowy Bank Polski’s (NBP) room to cut interest rates as quickly as markets currently expect.
The warning comes as the zloty has traded near multi-year lows against the euro, pressured by a strong US dollar and geopolitical tensions in the region. As of early February 2025, EUR/PLN was hovering around 4.30, with the zloty down roughly 3% year-to-date.
Implications for NBP Rate Cuts
Poland’s inflation rate fell to 4.7% year-on-year in January 2025, down from 6.2% in December, but still above the NBP’s 2.5% target. The central bank has held its reference rate at 5.75% since October 2023, but markets have priced in potential cuts later this year.
BNY argues that if pass-through effects materialize, the NBP may be forced to delay or slow its easing cycle. “The zloty’s weakness is not just a market story; it has direct implications for domestic price stability,” the note said. “Policymakers will likely remain cautious, watching currency moves closely before committing to a cut.”
Why This Matters for Investors and Consumers
For investors, the risk of delayed rate cuts could support the zloty in the medium term, as higher interest rates attract foreign capital. However, for Polish households and businesses, a weaker currency means more expensive imports, particularly energy and food, which could keep consumer prices elevated.
The NBP’s next policy decision is scheduled for March 5, 2025. Analysts will be watching for any shift in language regarding the currency and inflation outlook.
Conclusion
BNY’s warning underscores a delicate balancing act for Polish policymakers: supporting economic growth through lower rates versus defending the currency and containing imported inflation. The zloty’s trajectory in the coming months will be a key determinant of the NBP’s policy path, with implications for both financial markets and everyday consumers.
FAQs
Q1: What is import pass-through?
Import pass-through refers to the degree to which changes in exchange rates affect domestic prices of imported goods. A weaker currency makes imports more expensive, which can feed into consumer inflation.
Q2: How does the zloty’s weakness affect Polish inflation?
Since Poland imports a significant portion of its energy and food, a weaker zloty raises the cost of these goods, contributing to higher headline inflation. This can limit the central bank’s ability to cut interest rates.
Q3: What is the NBP’s current interest rate?
As of February 2025, the NBP reference rate stands at 5.75%. The next policy meeting is scheduled for March 5, 2025.
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