Warsaw, Poland — A stronger euro is quietly complicating the Polish zloty’s inflation outlook, according to BNY senior market strategist Geoff Yu, who argues that EUR/PLN gains are feeding directly into higher import prices. The warning lands as the Monetary Policy Council (MPC) holds firm on its guidance for unchanged interest rates, even as market pricing increasingly points to a return above 4%.
Yu’s analysis centers on the pass-through mechanism: when the zloty weakens against the euro, goods imported from the eurozone become more expensive in local currency terms. With the eurozone accounting for roughly 58% of Poland’s total imports, the channel is far from trivial. The latest inflation readings in Poland have already shown signs of stickiness, and BNY sees currency dynamics as a key reason why the disinflation path may not be as smooth as the central bank hopes.
Also read: Indian Rupee: Yields Look Attractive After Sell-Off, DBS Says
MPC Guidance vs. Market Reality
The tension now playing out in Polish rate markets is between official communication and investor positioning. The MPC, led by Governor Adam Glapiński, has consistently signaled that borrowing costs will stay on hold for an extended period, citing uncertainty over fiscal policy and wage growth. Yet the forward curve tells a different story, with traders pricing in a meaningful chance of rate hikes rather than cuts.
That divergence matters for anyone holding zloty-denominated assets. If the market is right and the MPC is forced to act, the adjustment could come abruptly. If the MPC is right, the market will eventually have to unwind those positions, which could itself create volatility in EUR/PLN.
Also read: Dollar Stabilizes but Basis Trade Risks Loom, Commerzbank Warns
The broader Central and Eastern European context adds another layer. The Czech National Bank and the Hungarian National Bank have both faced similar import price pressures, though their policy responses have diverged. Poland’s larger domestic market and its position as a key recipient of EU recovery funds give it more room to absorb shocks, but they do not insulate it from currency-driven inflation.
What to Watch in the Coming Months
For observers tracking the zloty, several factors are likely to determine whether Yu’s warning materializes into actual policy action:
- EUR/PLN levels: A sustained break above the 4.30 mark would likely intensify import price pressures and sharpen the debate within the MPC.
- Core inflation momentum: Services inflation in Poland has proven especially sticky, and currency pass-through tends to hit goods prices first before spreading.
- Eurozone growth data: A weaker European economy would naturally weigh on the euro, potentially easing the pressure on the zloty without any MPC intervention.
- Fiscal signals from Warsaw: Defense spending and energy subsidy phase-outs will influence the inflation trajectory more than any single currency move.
The next scheduled MPC decision is expected in early September, and the accompanying commentary will be scrutinized for any shift in language around the exchange rate. Historically, the Council has been reluctant to target a specific EUR/PLN level, preferring to emphasize the inflation outlook as its sole mandate. But with import prices now a visible risk, that stance may become harder to maintain.
Yu’s broader point is that central banks in smaller open economies cannot fully decouple from currency dynamics, even when their policy frameworks are formally focused on domestic price stability. Poland’s experience over the past year — with inflation peaking above 18% in early 2023 before falling sharply — shows how quickly the pass-through channel can move in both directions.
The market’s pricing of a return above 4% suggests investors are already hedging against the possibility that the MPC’s patience is misplaced. Whether that pricing proves correct will depend on data that is inherently uncertain, and the zloty’s path in the interim will be a key signal for anyone watching the region.
This article is for informational purposes only and does not constitute financial advice. Currency and interest rate markets are volatile and subject to rapid change; readers should conduct their own research before making any investment decisions.
