Tensions are rising around Polish assets, with several factors driving the pressure. The banking index is dragging down the domestic stock exchange, while eurozone CPI data shows no change in the monetary policy outlook for the region.
A Combination of Adverse Events
Today is marked by weakness in the Polish currency. On the EUR/PLN pair, the move is minor at just 0.10%. The USD/PLN, however, is up nearly 0.8%. External factors are partly to blame—a sharp 0.7% drop in the world’s most important currency pair is weighing on emerging-market currencies. Domestically, the weakness coincides with the start of the Monetary Policy Council (MPC) meeting, which is expected to deliver a rate cut welcomed by borrowers.
The zloty’s decline could signal investor expectations of at least a 25-basis-point cut. For PLN, the rhetoric of the MPC’s chairman will also be crucial, as he may provide hints about the future path of monetary easing. Uncertainty around future energy prices could be an important factor urging caution in monetary policy.
Uncertainty Around Polish Assets
Uncertainty itself is proving enough to discourage investment in local assets, evident in the slump on the Warsaw Stock Exchange. Higher energy costs remain a significant burden for businesses, but the banking sector faces even bigger challenges in the near term. The government has been eyeing bank profits, and the new president supports the idea of raising the corporate income tax (CIT). This makes the proposal increasingly likely.
Since its August peak, the WIG20 index has dropped 10%, with banking stocks leading the decline. Bank shares are considered a flagship product of the Polish exchange due to their liquidity, which attracts foreign investors. The Finance Ministry plans to introduce a 30% CIT in 2026, expected to generate nearly 7 billion PLN in budget revenue. While banks can afford the higher tax thanks to record profits, the sector will also be hit by potential rate cuts, which reduce lending margins.
Nervousness is also evident in the bond market, where 10-year yields have reached 5.5%.
ECB Can Afford to Wait
Today’s eurozone CPI reading came in at 2.1% for August, in line with forecasts and slightly above July’s 2.0%. Since March, inflation has stabilized around 2%, which is likely a welcome development for the European Central Bank (ECB).
Why? Because it allows the ECB to wait and watch after its monetary easing phase. With inflation near target, there is little room for further cuts. A policy shift would only be justified by a sudden move in inflation—either higher or lower. This “wait-and-see” approach means the euro should remain relatively strong against the U.S. dollar, where investors expect upcoming rate cuts.
Author: Krzysztof Pawlak, Currency Analyst, Walutomat.pl
Source: CEO.com.pl
