BNY reported that National Bank of Poland (NBP) rate expectations may be repriced due to inflation risks linked to the regional conflict. It said the NBP’s March rate cut did not fully reflect this risk.
The note said the March decision came at the start of the Iran conflict, when markets expected limited disruption to energy and other input prices. It added that the NBP statement referred to “changes in the global commodity prices and inflation, amid geopolitical tensions,” but did not mention the conflict directly.
Global Policy Expectations Shift
It said global policy expectations later shifted as Polish inflation rose to 3% year-on-year in March. It also reported a 1.0% month-on-month increase, linked to higher input prices.
The note added that other Central and Eastern Europe (CEE) central banks have adjusted near-term guidance without committing to specific moves. It said CEE inflation data has not yet required a strong central bank response.
It also stated that European Central Bank and Bank of England rate pricing looks too high given weak Eurozone and UK growth. It said there are upside risks to CEE policy pricing in the coming months, starting with the NBP.
We believe the market is still under-pricing the risk of higher rates from the National Bank of Poland. Looking back, the NBP’s March 2025 rate cut was a mistake, as inflation immediately accelerated due to rising energy costs from the conflict. This created a clear divergence that traders can still exploit.
Poland Rates May Need To Reprice
The forecast from last year proved correct, as the NBP was forced to reverse course and hike rates aggressively through the end of 2025. Today, with Polish inflation for March 2026 just reported at 5.8%, the central bank’s policy rate of 6.75% may not be high enough. This ongoing inflationary pressure is not yet fully reflected in forward-looking derivatives.
The situation is very different from that of the European Central Bank, which faces a much weaker economy. With Eurozone GDP growth barely positive in late 2025 and recent German industrial data for February 2026 showing weakness, the ECB has little room to tighten. This makes the Polish zloty attractive on a relative basis.
Therefore, derivative traders should consider positions that benefit from rising Polish interest rate expectations. Entering into Polish zloty interest rate swaps to pay a fixed rate, or using forward rate agreements, seems prudent. Current market pricing implies only a coin-flip chance of another rate hike this year, which seems too low given the inflation data.
