Polish Zloty: Pressured by policy and fiscal risks – Commerzbank

Commerzbank’s Tatha Ghose argues that the environment for the Zloty remains negative. He cites temporary fuel tax cuts that artificially lower inflation and may encourage the NBP to delay rate hikes, as well as warnings from Fitch that Poland’s large fiscal deficits and rising debt could threaten its sovereign rating, extending FX downside risks for PLN.

Monetary dovishness and rating concerns

"The government estimates that this could lower October CPI inflation by a full 1pp, potentially returning headline inflation to around 3%y/y (last reading 4%). One might imagine that falling inflation would be good for the zloty, but it is not. This is an artificially-created temporary fall, whereas NBP seemed to use such relief as an argument to delay rate hikes."

"Fuel prices are forecast to rise again already beginning this week because the cap still incorporates global price moves – and world energy prices are not relenting. The tax relief is scheduled to expire on 31 December anyway, which could produce another inflation jump early next year. Glapinski is banking on relief to be extended, but this is not guaranteed and can hardly be the basis for prudent monetary policy."

"The dovish signal from MPC last week made the zloty depreciate immediately against peers such as the Hungarian forint; this slippage is now extending."

"Meanwhile, rating agency Fitch warned that failure to reduce the fiscal deficit, further pre-election easing or weaker growth could trigger a rating downgrade. Fitch forecasts deficits of 7.3% of GDP in 2026 and 7.1% in 2027, with debt reaching 73.4% by 2028. The FX risk from such an unsustainable fiscal situation and its resultant rating risk is self-explanatory."

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