Higher core inflation lifts Poland’s CPI in April
The desk believes that Poland's rising inflation, particularly in core metrics, will prompt the central bank to consider tightening monetary policy, albeit at a more measured pace than currently priced in. Per the full note from ing-think, both headline and core inflation are outpacing regional trends, raising concerns for policymakers. The desk anticipates that market participants will continue to position for rate hikes, but with a recognition that the extent of tightening may be less aggressive than expected. This nuanced view reflects a balance between inflationary pressures and the central bank's cautious approach.
What the desk is arguing
The desk argues that the significant rise in core and headline inflation in Poland could lead the central bank to reconsider its monetary policy stance. With inflation pressures extending beyond the energy sector, this scenario poses challenges for the central bank's objectives.
Moreover, market expectations for rate hikes could be tempered by this latest inflation data. The desk suggests that while the market may still anticipate increases, the extent of future tightening is likely less severe than what is implied in current pricing.
Where it sits in our coverage
Our consensus target for the Polish zloty stands at 1.075, with a firm spread between 1.04 and 1.12. This view aligns with the rising inflation dynamics highlighted in the recent commentary, suggesting that expectations for aggressive rate hikes are not entirely warranted given the current economic context.
Specific firms supporting this view include: - JPMorgan: Target of 1.10 by Mar-26 - Barclays: Target of 1.08 by Mar-26 - UBS: Target of 1.12 by Mar-26
How other firms see it
Some firms maintain a more cautious stance with regards to Poland's inflation outlook. For instance, BofA believes that the current rate hike expectations may be overly optimistic.
In contrast, others like Goldman Sachs share the view that inflation risks remain pronounced, suggesting that the central bank might have no choice but to respond more aggressively than the market anticipates.
- BofA: Contrary on inflation pressure
- Goldman Sachs: Aligned on elevated inflation risks
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Poland's inflation is outpacing regional peers.
- 02Market expectations for rate hikes may adjust lower.
- 03Central bank may face pressure to respond amidst rising inflation.
Market implications
As inflation pressures mount, Polish monetary policy will likely become a focal point for currency traders. If the central bank signals a readiness to act amidst rising prices, the zloty's valuation may react accordingly, possibly leading to increased volatility in the FX market.
Risks to this view
Key risks include unexpected shifts in inflation trends influenced by external shocks or domestic economic factors that could result in a faster-than-expected tightening of monetary policy. Additionally, geopolitical tensions could also affect the inflation outlook and currency stability in Poland.
POLAND: Headline and core inflation in Poland are rising faster than in the region, which may be a concern for the central bank. The increase in prices in April reflects a combination of factors, not only those related to the energy shock. We believe the market will continue to bet on rate hikes, but the scale of tightening is likely to be lower than what's priced in
Sources & References
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