The fallout from the weekend’s elections continues to reverberate across Poland. The unexpected victory of Karol Nawrocki has disrupted the current ruling coalition’s plans. In response, Prime Minister Donald Tusk announced during a speech that he would submit a motion of confidence. Meanwhile, opposition leader Jarosław Kaczyński has called for the formation of a technocratic government.
Market Stagnation Amid Political Shifts
Markets are struggling to find direction in the wake of the electoral surprise. Monday’s session opened nervously, but later in the day, global sentiment lifted both the Polish zloty and the WSE, bringing prices back toward Friday’s closing levels. However, on Tuesday morning, sentiment worsened again—particularly for the zloty, which is seeing noticeable losses.
This downturn is partly due to a broader “risk-off” mood in global markets, but locally, much of the pressure stems from Prime Minister Tusk’s Monday evening address. Although he congratulated Nawrocki on his win, the overall tone of his speech raised concerns about future cooperation between the two power centers. His announcement of a confidence vote added to market anxiety—even if, politically, it’s unlikely he would take such a step without being sure of the outcome. Still, nervousness is rising and likely to intensify as the vote approaches.
On the wave of Sunday’s success, opposition leader Jarosław Kaczyński called for the creation of a technocratic government. However, this scenario appears highly unlikely. Realistically, two paths remain: continued cohabitation—dependent on the new president’s willingness to cooperate—or early elections. From a market perspective, both options carry negative implications.
Monetary Policy Council Meeting Begins
Tuesday’s trading session also coincides with the start of the Monetary Policy Council’s (RPP) meeting. Although the interest rate decision will be announced on Wednesday, the market is already positioning for possible outcomes. At the last meeting, interest rates were cut by 50 basis points, a move described by NBP Governor Adam Glapiński as an adjustment to new conditions, rather than the beginning of a broader cycle.
Analysts agree that no change is expected this week, but they increasingly anticipate additional rate cuts later this year—possibly as early as July. By then, policymakers will have access to a new inflation forecast, which is expected to project a sharp decline in price growth. This would pave the way for a formal rate-cutting cycle, adding further downward pressure on the zloty. Until now, the zloty has benefited from the central bank’s reluctance to ease policy, with the interest rate differential supporting the currency earlier this year.
Switzerland Returns to Deflation
Elsewhere, Swiss inflation data drew attention. For the first time in nearly four years, Switzerland has entered deflation territory. In May, prices were 0.1% lower than a year earlier—exactly as predicted by analysts, though still notable. Even when much of the world faced rampant inflation, Swiss inflation peaked at just 3.5%. For nearly two years, it remained below the 2% threshold before falling below zero.
Switzerland has experience operating in a deflationary environment—most recently in the early 2010s. The Swiss National Bank (SNB) already cut interest rates to 0.25% in March, and today’s data may fuel discussions about returning to negative rates.
Eurozone Inflation Surprises to the Downside
Eurozone inflation also offered a mild surprise, dropping to 1.9%, slightly below the expected 2.0%. Core inflation fell sharply to 2.3%, down from close to 2.8% just a month ago. The market response was muted: the EUR/USD pair, after reaching $1.145, began retracing back toward the $1.14 mark.
Krzysztof Adamczak – Analyst at InternetowyKantor.pl
Source: ceo.com.pl
