Polish Zloty: Import Pass-Through Risk Challenges Rate Cuts — BNY

The sustained strength of the euro is exerting new imported inflation pressure on the Polish zloty, complicating the central bank's potential rate-cut path. BNY analyst Geoff Yu noted that the euro's rise against the zloty is directly pushing up Poland's import prices, with this pass-through effect emerging as a key risk point for current monetary policy.

**Import Pass-Through Pressure and Policy Divergence**

Poland's Monetary Policy Council has previously maintained a relatively stable rate guidance, but market pricing reflects expectations for rates to return above 4%, showing a clear divergence between the two. Following the National Bank of Poland's recent 25-basis-point rate cut, its benchmark rate has been adjusted to 4.75%, while market prices are positioning for a more substantial tightening trajectory. At the core of this divergence is that euro appreciation, by raising imported goods costs, could slow inflation's decline more than the central bank anticipates, thereby constraining room for further rate cuts.

**The Euro's Amplification Effect**

From a currency perspective, the euro is trading near 1.16471 against the dollar, in a relatively strong range, which indirectly drives the euro-zloty exchange rate higher. When imported goods are priced in a strong euro, the pass-through pressure on Poland's domestic prices is amplified in tandem. If this trend persists, even with steady domestic demand, cost-push pressures from the import side could render overall inflation sticky, forcing policymakers to maintain a more cautious tone in the coming months.

**A Warning from Market Pricing**

The current pricing dynamics in the rates market warrant attention, as the implied probability of rate hikes suggests investors believe imported inflation risks have not been fully digested. Although the Polish central bank's previous moves to hold steady or cut rates modestly were aimed at supporting the economy, if currency-side pressure persists, policy choices will become more difficult. Against the backdrop of some Asia-Pacific central banks opting for surprise rate cuts amid economic strain, the trade-off between growth and currency stability among major global central banks will directly shape the zloty's subsequent performance.