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Polish Inflation Falls to Lowest Since 2019, Zloty Faces External Pressures

ECONOMYPolish Inflation Falls to Lowest Since 2019, Zloty Faces External Pressures
  • According to final data, Polish CPI inflation slowed in March to 2% year-on-year from 2.8% year-on-year in February. There was a slight upward revision compared to the initial estimate (1.9%). This is the lowest level since March 2019. Core component prices rose in March by 4.6% year-on-year (the lowest since October 2021).
  • The noticeable weakening of the zloty, especially in the first half of the week, was due to an increase in risk aversion in the financial markets (the Fed will maintain high interest rates for an extended period). Compared to other CEE currencies (CZK, HUF), the zloty had room for more pronounced depreciation, considering earlier events (zloty appreciation in the first quarter of 2024) and speculative capital accumulated in zlotys. The sharp weakening of the zloty was therefore due exclusively to external factors, not domestic ones (Polish statistics, NBP monetary policy).
  • In our view, two scenarios are possible in the coming weeks. (1) The situation in the markets stabilizes, and trading returns to first-quarter norms (we see this scenario as slightly more likely). This would mean a return to levels around 4.30 PLN/EUR for the euro and zloty and possibly testing this year’s highs at 4.25 PLN/EUR. In the short term, a temporary weakening of the zloty to the 4.4 PLN/EUR level (minimum since mid-January) cannot be excluded. The same applies to the dollar and zloty – a return to a wider range around the 4 PLN/USD level. (2) Higher risk aversion persists in the financial markets for a longer period. The dollar strengthens against the euro to the level of 1.05 USD/EUR, and perhaps even deeper. The zloty will remain at weaker values and will continue to weaken. Against the euro – the level of 4.4 PLN/EUR and above (4.45 – levels from early November 2023) and against the dollar, heading towards 4.2 PLN/USD and above.


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