The National Bank of Poland is expected to keep its main reference rate at 3.75% at the 2 June meeting and thereafter, following a softer May inflation print that left CPI within the central bank’s tolerance band. The target is 2.5% with a ± 1 percentage point deviation, and recent price data have reduced the chance of tightening this year while policymakers assess how an oil price shock might feed through to inflation and growth.
May headline CPI slowed to 3.1% year on year, compared with a 3.7% market consensus, while food prices logged their sharpest May decline since Poland’s early-1990s transition. Prior conditions for a rate rise were framed around inflation moving above 3.5% and projections keeping it there, but the latest reading shifts that timeline: under a worst-case scenario, inflation does not exceed 3.5% until 4Q26, and under a more optimistic one it may not happen this year or next. April data also pointed to slower wage growth, alongside weaker industrial production and retail sales, supporting an extended pause through 2027.
Monetary Policy Outlook And Market Positioning
Given the surprising drop in Polish inflation to 3.1% in May, we see the National Bank of Poland holding its key interest rate at 3.75% at its meeting tomorrow and for the foreseeable future. This unexpected cooling of prices fundamentally reduces the chances of any rate hikes this year. This means we should position for a more stable, or even dovish, monetary policy environment.
Recent economic data supports this outlook, making the case for tighter policy much weaker. First quarter GDP growth came in at a modest 2.0% year-over-year, while April retail sales actually fell by 1.8%, both missing forecasts and signaling a slowdown. With both inflation and economic activity showing signs of cooling, the central bank has no incentive to raise borrowing costs.
For interest rate traders, this means we should consider receiving fixed rates on Polish Zloty interest rate swaps. Market pricing that may have factored in a small chance of a rate hike will now need to adjust downwards. This adjustment would make receiving a fixed rate, benchmarked against a floating rate like 3-month WIBOR, a profitable strategy as expectations shift.
Currency Implications And Key Risks
From a currency perspective, a central bank on hold is less attractive for the Zloty, especially if other central banks remain hawkish. We can express this view by buying call options on currency pairs like EUR/PLN, which would profit if the Zloty weakens against the Euro. Furthermore, with the NBP’s path now more predictable, we anticipate lower currency volatility, making it a good time to sell options like strangles to collect premium.
Looking back, the NBP has a history of prolonged periods of stable rates, such as holding its key rate at 1.50% from 2015 through 2021 despite various economic shifts. This precedent suggests the bar for them to start a new hiking cycle is very high, reinforcing our view that they will remain on the sidelines. We expect this holding pattern to persist well into 2027.
The primary risk to this strategy remains the oil shock mentioned, as a sudden surge in energy prices could reignite inflation and force policymakers to reconsider their stance. We must monitor Brent crude prices, which have recently climbed back above $80 per barrel, as this is the main factor that could derail the current disinflationary trend. This external pressure remains the key variable that could quickly change the NBP’s calculus.
