Are interest rate cuts in Poland likely?
We do not rule out such a scenario, but for it to materialize in 2026 we would need a lasting stabilization of maritime trade in the Strait of Hormuz and a reduction in international tensions, which seems like a wishful, probably overly optimistic scenario. Additionally, domestic consumption would have to slow down further.
Impact of domestic factors on the zloty
Whether we view the recent change in expectations regarding the path of Polish interest rates as too aggressive (in mid‑May three full upward moves were still priced before year‑end), the room for further depreciation of the zloty on domestic factors appears limited at the moment.
Behind the scenes the issue of the highest budget deficit in the European Union still lingers, but we doubt it will return to the spotlight during the summer period.
Impact of external factors on the zloty
Although domestic reports that favor a looser RPP monetary policy weigh on the Polish currency, the recent weakening is primarily driven by external factors.
Key in this regard was the strengthening of the dollar, supported by hawkish rhetoric accompanying the latest Federal Reserve meeting, investors’ risk aversion, and solid data from the U.S. economy.
For this reason, the planned June NFP report publication on Thursday is of fundamental importance for the Polish currency. Any signs of cooling in the U.S. labor market could prompt investors to partially withdraw bets on Fed rate hikes, which already seem excessive to us.
The market received Kevin Warsh’s first conference as hawkish, which we would be willing to debate. The new president spoke unfavorably about current price‑pressure measurement techniques.
Previously he presented, among others, a trimmed average developed by the Dallas Fed branch. In May it rose to… 2.4%, which is still consistent with the “absolute commitment to achieving the inflation target”. Especially considering that Warsh does not care about “what comes after the decimal point”.
