ING expects the National Bank of Poland (NBP) to leave the policy rate at 3.75% and keep it there through year-end, with any easing postponed until policymakers are more confident about inflation. The easing cycle was interrupted by turmoil in the Persian Gulf, while recent disinflation has been linked to normalising oil prices and unexpectedly sharp declines in food prices. Core inflation remains close to 3%, and the expiry at end-June of fiscal measures cutting petrol and diesel costs—via lower excise duties and VAT rates—has lifted fuel prices at the start of July.
Attention is on the new NBP forecast, today’s statement and tomorrow’s press conference, with the July projection expected to show a favourable medium-term inflation profile. Markets are pricing around 10bp of cuts, after previously putting several hikes back into the curve in recent weeks, as the rate differential narrows and front-end rates outperform CEE peers. Alongside a stronger US dollar, this has weighed on the zloty, following EUR/PLN moves towards 4.29–4.30; having reached 4.290–300, the next leg may depend on whether the NBP signals a 2024 cut, as the debate is expected to gather momentum after the summer.
Interest Rate Outlook and Inflation Risks
We believe the National Bank of Poland will keep interest rates at 3.75% through the end of the year, delaying any cuts until they are sure about inflation. This dovish stance is weighing on the zloty, especially as the EUR/PLN pair tests the 4.29-4.30 resistance level. The key question for us now is whether the central bank will signal a rate cut for this year.
Although headline inflation for June dropped to 2.5% year-on-year, we are more concerned with core inflation, which remains stubbornly high at 2.9%. Furthermore, with fiscal support for fuel expiring at the end of June and Brent crude trading above $85 a barrel, we expect transport costs to add inflationary pressure. This makes an immediate rate cut unlikely but keeps the debate alive for later this year.
Currency Strategy and Market Volatility
Given the potential for EUR/PLN to move higher, especially if the NBP governor sounds dovish, we are looking at options strategies. Buying EUR/PLN call options with expiry dates after the summer, perhaps in September or October, seems like a prudent move. This allows us to profit from a weakening zloty while capping our potential downside if the central bank remains surprisingly hawkish.
We also see an opportunity in the rising implied volatility for the zloty. The current market is only pricing in about 10 basis points of cuts, suggesting any strong dovish signal could cause a sharp move and a spike in volatility. Historically, preceding NBP easing cycles, like the one in 2012-2013, we saw a notable increase in currency fluctuations, making long volatility positions like straddles potentially profitable.
