Polish Zloty Under Pressure as Lower Inflation Fuels Rate Cut Bets: ING

The Polish zloty faced renewed selling pressure against the euro on Wednesday, following the release of domestic inflation data that came in below market expectations. Analysts at ING Bank noted that the softer inflation reading has shifted the narrative around the National Bank of Poland’s (NBP) monetary policy trajectory, prompting markets to price in a higher probability of rate cuts in the coming months.

Inflation Data Surprises to the Downside

Poland’s consumer price index (CPI) for the latest reporting period registered a lower-than-anticipated increase, decelerating more sharply than economists had forecast. The data marks a continued cooling trend from the peak levels seen earlier in the year, driven by easing energy costs and a moderation in core goods prices. The surprise has immediate implications for the zloty, as currency markets are highly sensitive to shifts in interest rate differentials.

Market Reaction and Analyst View

Following the release, the EUR/PLN pair edged higher, crossing the 4.30 threshold before settling near session highs. ING’s currency strategy team highlighted that the market is now reassessing the timeline for potential NBP easing. ‘Lower inflation reduces the urgency for the central bank to maintain its hawkish stance,’ the analysts wrote in a note. ‘This opens the door for rate cuts earlier than previously expected, which is negative for the zloty in the near term.’

Implications for the NBP

The NBP has kept its benchmark interest rate steady for several months, citing persistent core inflation and wage pressures. However, the latest data may embolden dovish members of the Monetary Policy Council. ING cautioned that while one data point does not constitute a trend, the downside surprise could accelerate the debate around policy normalization. The next NBP meeting is scheduled for early next month, and market participants will closely watch for any change in the central bank’s forward guidance.

Broader Context for the Zloty

The zloty’s weakness is also occurring against a backdrop of a broadly stronger euro, which has gained ground on expectations that the European Central Bank will maintain higher rates for longer. This divergence in monetary policy outlooks between the eurozone and Poland is creating headwinds for the zloty. Additionally, global risk sentiment remains fragile, with geopolitical uncertainties in the region weighing on Central and Eastern European currencies.

Conclusion

The combination of lower domestic inflation and a hawkish ECB stance is creating a challenging environment for the Polish zloty. While the currency has shown resilience in recent months, the shift in rate cut expectations could lead to further depreciation in the short term. Traders will now focus on any commentary from NBP officials and the upcoming CPI readings for confirmation of the disinflation trend.

FAQs

Q1: Why did the Polish zloty weaken after the inflation data?
Lower-than-expected inflation reduces the likelihood of the NBP keeping interest rates high, making the zloty less attractive to yield-seeking investors. Markets priced in a higher chance of rate cuts, which typically weakens a currency.

Q2: What is the current EUR/PLN exchange rate?
The EUR/PLN pair traded above 4.30 following the data release, with intraday gains of around 0.3% as of the latest session. The rate remains within its recent trading range but has shifted toward the weaker side for the zloty.

Q3: When is the next NBP interest rate decision?
The National Bank of Poland’s Monetary Policy Council is scheduled to meet in early next month. The decision and accompanying statement will be closely watched for any shift in the central bank’s stance on inflation and rates.