The Polish National Bank (RPP) held interest rates steady during its first meeting after the summer break. The chances of a cut this year are essentially zero. The market anticipates probable rate cuts in the second half of 2025, which should keep the Polish zloty strong.
“The RPP has spent almost a year in a holding pattern, making the zloty one of the most preferred currencies for investors worldwide,” says Michał Stajniak, Deputy Director of XTB’s Analysis Department, in a conversation with MarketNews24. “On the USD/PLN pair, we have even observed tests on the level of 3.80, and the EUR/PLN has decisively fallen below the level of 4.30.”
Following the RPP decision, the statement indicated that the current level of interest rates is conducive to the implementation of the inflation target in the medium term. The RPP admits that the recent rebound in inflation is due to administered prices, but stresses the economy is still on solid footing, and wage growth remains high. These factors could stabilize core inflation soon, which remains quite high, following its recent rebound to 3.8% year-on-year in July.
The market currently prices in no prospects for cuts within the next 3 months, yet over the one-year horizon, it estimates around 90 basis points of cuts which would result in at least 3 decreases. Some RPP members indicate that there may be room for reductions, although this might only happen in the latter half of next year.
In the long term, the market predicts an interest rate drop to 3.75%, two percentage points lower than the current level. Maintaining interest rates without change for the past months and the prospect of keeping them unchanged for several more months has served the Polish zloty well. However, it’s important to remember that exactly a year ago, the RPP made a rather controversial decision to cut interest rates by 75 basis points and then by 25 basis points ahead of the October parliamentary elections.
If inflation performs better than expected over the next 6 months, the RPP could lower rates earlier than anticipated, possibly by May—just before the upcoming presidential elections.
From a monetary policy perspective, the current situation in the United States is worth considering. Relatively weak labor market data in the form of the JOLTS report has increased the probability of a 50 basis points cut to 44%. Previously, such a move was rated as having a 33% probability.
“The lack of prospects for imminent interest rate cuts in Poland, when at the same time both the Fed and ECB are cutting rates, should theoretically favor the weakening of the euro and dollar. However, such decisions have long been expected and have already been priced in by investors,” comments the XTB expert. “Nevertheless, on the currency market, profit taking could still occur.”
Profit-taking would confirm seasonality where the zloty usually weakens temporarily post-summer in September.
Similar seasonality is also observed on Wall Street, where the sentiment can lead to a flight from emerging market currencies.
“We can’t rule out seeing the dollar reach 4 zloty in September, but these are still attractive levels for the USD/PLN pair,” adds Michał Stajniak from XTB.
Source: https://managerplus.pl/rpp-utrzymala-stopy-procentowe-bez-zmian-obnizki-mozliwe-dopiero-w-drugiej-polowie-2025-r-22398
