EUR/PLN: ING forecasts more rate cuts for Polish zloty as inflation nears target

National Bank of Poland Governor Adam Glapinski's recent dovish remarks signal potential for further interest rate cuts, with September not ruled out, despite not marking the start of a cutting cycle. While Glapinski indicated 3% as a potential terminal rate if inflation reaches 2.5%, ING economists now advise pricing a 3.00-3.50% range. This dovish stance is expected to maintain bearish pressure on the Polish zloty, with ING projecting further depreciation given rate differentials.

Analysis

The National Bank of Poland (NBP) has signaled a distinctly dovish stance, with Governor Adam Glapinski indicating the potential for further interest rate reductions. While clarifying that the recent move does not initiate a formal cutting cycle, he explicitly did not rule out another cut in September, contingent on incoming economic data. Glapinski identified a potential terminal rate of 3% should inflation return to its 2.5% target. In response, ING economists, who project inflation will reach this target by July, have advised markets to price in a terminal rate range of 3.00-3.50%. This pivot has direct implications for the Polish zloty (PLN), which surrendered initial gains following the governor's remarks. ING maintains a bearish outlook on the currency, asserting that the prospect of additional rate cuts will exert continued downward pressure. The widening rate differential further supports this view, with analysis pointing toward potential PLN levels around 4.290 as markets price in further monetary easing.

Key Decisions for Investors

• Given the NBP's dovish pivot and ING's bearish outlook, investors with long exposure to the Polish zloty should consider hedging strategies, as the currency faces downward pressure from potential further rate cuts.
• The prospect of the NBP's policy rate moving towards a 3.00-3.50% range presents a potential opportunity in Polish fixed income; investors may consider increasing exposure to Polish government bonds to capitalize on falling yields.
• Future NBP actions are explicitly data-dependent, so investors should closely monitor upcoming Polish inflation reports, as a reading near the 2.5% target could trigger another rate cut and intensify bearish pressure on the zloty.