Polish inflation fell to 2.1% in June, extending a three-month slowdown and erasing the risk of a rate increase; the zloty slipped and government bonds surged as traders priced out tightening.
Fading rate-hike expectations reduce the zloty's carry appeal, prompting selling pressure. EUR/PLN rose 0.3% to 4.35 as markets priced out a near-term NBP tightening, with room to extend toward 4.40.
The zloty weakened because slowing inflation removed the urgency for a rate hike, reducing the carry advantage of holding zloty assets. Lower rate expectations make the currency less attractive.
Technical resistance sits at 4.38, with a break above opening the way to 4.45. Support is at 4.30.
Polish 10-year yields dropped 8 bps to 5.90% as rate hike bets unwound. Lower inflation reduces the term premium, while the NBP's likely hold stance flattens the curve, boosting longer-dated bonds.
Slowing inflation reduced expectations for near-term policy tightening, causing a rally in local bonds and compressing yields. The market now sees the NBP on hold, which flattens the yield curve and supports longer-dated bonds.
If inflation continues to moderate and the NBP signals no urgency to hike, bonds could extend gains. However, loose fiscal policy and heavy bond supply may cap further price increases.
Easing inflation and vanishing rate-hike risk lower corporate borrowing costs and support equity valuations. Polish banks and real estate firms benefit from reduced funding costs, lifting the WIG20 index.
It reduces the discount rate, making future earnings more valuable, and lowers interest expenses for leveraged sectors. The WIG20 index, heavy with banks and energy, typically rallies on dovish policy signals.
Banks and real estate outperform as they are sensitive to interest rates. Lower rates reduce funding costs and support loan demand, while real estate capitalization rates compress.
Polish consumer price growth eased to 2.1% year-on-year in June, marking a third consecutive monthly deceleration. The drop below the central bank's upper tolerance band extinguishes expectations for a near-term rate hike, shifting focus to potential easing later in 2026. The zloty weakened and local bonds rallied as markets repriced the policy path.
Poland's consumer price index rose 2.1% year-on-year in June 2026, down from 2.4% in May, according to preliminary data. This marked the third consecutive monthly slowdown.
With inflation approaching the 2.5% midpoint target and growth concerns mounting, the NBP is likely to keep its benchmark rate at 5.75%, removing the risk of a rate hike and raising expectations for a potential cut later in 2026.
The zloty faces downward pressure as interest rate differentials narrow. A weaker currency may support the export-oriented economy, with analysts targeting EUR/PLN around 4.40 in the short term.