Polish Zloty: Dovish hold with limited tightening – ING

ING economists Rafal Benecki and Adam Antoniak note that the National Bank of Poland kept its reference rate at 3.75% in October, as expected, with inflation driven mainly by fuel prices. They argue the current backdrop allows the MPC to stay on hold for several months, and see only modest, preventive tightening in early 2027, far below current market pricing.

Polish rates held as inflation driven by fuel

"The Monetary Policy Council (MPC) kept the National Bank of Poland (NBP) reference rate unchanged at 3.75% in October, as expected. While inflation has risen, the increase is largely attributable to higher fuel prices. In our view, the current inflation backdrop allows policymakers to remain on hold for several months."

"We assume that preventive rate hikes of 25–50bp may take place at the beginning of 2027, as the persistently high energy prices increase the likelihood of second-round effects emerging. So far, this has not yet been seen in Poland but is starting to be present in the Czech Republic. In addition, developments in the energy market are likely to translate into significant increases in regulated prices, particularly gas tariffs, from the beginning of 2027."

"In November, the Council will review the latest macroeconomic projection, which could trigger the beginning of a discussion on the need for tighter monetary policy. Our baseline scenario assumes that the MPC might deliver two 25bp rate hikes in the first quarter of 2027 to reduce the risk of elevated inflation becoming entrenched. This is particularly relevant given that our forecasts point to some increase in core inflation over the coming months."

"Nevertheless, we believe that the scale of monetary tightening is likely to be considerably smaller than current market pricing suggests. Markets are currently pricing in around 100bp of rate increases."

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