Zloty Outlook Shifts Hawkish as Import Costs & Euro Rise

Key Moments

Import Pass-Through Puts Pressure on NBP

BNY’s Geoff Yu warns that the appreciation of the euro against the Polish zloty is heightening import cost pressures for Poland, as gains in EUR/PLN translate into higher prices on imported goods. This dynamic is complicating the policy outlook for the National Bank of Poland (NBP) and challenging expectations for interest-rate cuts.

According to Yu, Poland currently stands out within Central and Eastern Europe as the market with the clearest hawkish risk. That assessment is rooted in the interaction between currency moves, supply chain linkages, and import price dynamics, all of which are feeding into inflation risk and policy repricing.

Reflation, Euro Strength, and Supply Chain Dynamics

Yu cautions that what might typically be seen as positive developments for Europe – a stronger euro and reflation – are producing less benign effects for Poland in the near term. He notes that these factors are amplifying some of the inflation risks associated with existing supply shocks.

“The benign outlook may lead to unintended consequences. A stronger euro and reflation are normally healthy, but in the near term, risks exacerbate some of the inflation risk arising from supply shocks. Due to supply chain linkages, pass-through remains very strong across Europe, and recent moves in the euro lead to some additional hawkish risk in policy pricing.”

Yu contrasts Poland’s experience with that of Hungary, pointing out that Poland has not benefited from what he describes as the “re-rating shock” seen in the Hungarian market.

“For example, Poland has not enjoyed the “re-rating shock” in Hungary, which generated policy-neutral inflows. The latest data show that between March and May, import prices have increased materially even without significant upward moves in EUR/PLN. The risks of a further gain through Q3 are stronger, as EUR/PLN has made significant gains.”

Policy Guidance Versus Market Pricing

The current policy stance of the NBP is coming under strain, in Yu’s view. The Monetary Policy Council has signaled that it expects interest rates to remain unchanged for the rest of the year. However, market-based pricing implies that investors anticipate policy rates will need to rise again, moving back above the 4% threshold.

“The current policy setup faces challenges. The Monetary Policy Council envisages no change in interest rates for the rest of the year, but forward pricing suggests rates need to move back above 4%. Much will hinge on the ECB.”

This divergence between official guidance and market expectations places greater focus on the external policy environment, particularly decisions by the European Central Bank, which Yu identifies as a key variable for the Polish outlook.

NBP Response Capacity and Domestic Demand Risks

Yu notes that the NBP can handle a limited, preemptive adjustment such as the move taken in June. However, he warns that a shift into a more prolonged tightening phase would demand further action to realign with evolving inflation and market risks.

“It is manageable for the NBP to allow for June’s precautionary move, but the risk of a more sustained cycle will require a catch-up. Meanwhile, fiscal impulse remains strong, which can amplify domestic demand, a dynamic that is not helpful in a rising import price environment. At the very least, cuts need to be taken off the agenda entirely.”

The combination of strong fiscal stimulus and rising import prices, Yu argues, creates conditions that are not conducive to loosening monetary policy. Instead, he contends that the prospect of rate cuts should be removed from current scenarios.

Strategic Positioning: Poland and Sweden

Yu outlines a positioning strategy that reflects a more vigilant stance from both the NBP and Sweden’s Riksbank. He underscores the need to reassess expectations for Polish rate cuts and to re-evaluate the trajectory of policy tightening in Sweden.

“Position for greater NBP and Riksbank vigilance. Take Polish cuts off the table, favor earlier Riksbank tightening, and treat further upside in EUR/PLN and EUR(SEK as increasingly self-limiting.”

Policy and Market Signals at a Glance