Updated Polish CPI data confirm a disinflationary trend, with core inflation at 2.5% year-on-year, aligning with the Narodowy Bank Polski (NBP) target. This supports the NBP's renewed dovish policy stance and the March rate cut, which would typically reinforce expectations for further monetary easing. However, Commerzbank notes that policymakers have adopted a 'wait-and-see' approach due to escalating geopolitical conflict, volatility in oil prices, and domestic political uncertainty, particularly involving President Nawrocki and NBP chief Adam Glapinski, which has created uncertainty regarding defense spending and other policies. These factors are seen as negative for the Polish Zloty (PLN), potentially preventing further rate cuts despite the dovish inflation data [1].
ING highlights that Central and Eastern European (CEE) FX and rates have experienced some relief despite elevated energy prices. Regional central banks, including Poland, are treating the Gulf-related energy spike as a supply shock and prefer to wait it out, with no case for rate hikes. February secondary inflation figures in Poland and the Czech Republic confirm a favorable starting point before the US-Iran conflict. ING notes that central banks are likely to remain on hold, outpricing rate cuts, and do not see a case for rate hikes, which the market quickly priced in. The current environment is more stable than in 2022, with inflation below target, improved current accounts, and a more predictable domestic economy, giving central banks room to wait longer [2].
Regarding broader market implications, ING's scenario analysis suggests that even under a severe and prolonged Gulf conflict, European gas prices are unlikely to revisit 2022 extremes. Their baseline assumes intensive combat ends within two weeks, with Brent crude averaging $91/b in Q2 and $85/b in Q3. Gas prices are expected to remain elevated only in a severe conflict, but a return above 100 EUR/MWh in TTF is unlikely. This supports a constructive medium-term view on EUR/USD, as capped gas prices mean a smaller impact on eurozone terms of trade and the euro's fair value. However, near-term downside risks persist, with EUR/USD potentially dipping below 1.1450 before recovering later in the year, depending on developments in the Gulf and central bank meetings [3].
According to [1], the environment is not positive for the Polish Zloty, even though it might prevent further rate cuts. Meanwhile, [2] reports that central banks are comfortable waiting out the supply shock, and [3] provides a cautiously optimistic outlook for EUR/USD into year-end, despite short-term risks.
CONCLUSION
Polish disinflation and a stable inflation backdrop across Central and Eastern Europe have given central banks room to maintain a cautious stance amid geopolitical and energy price uncertainties. While dovish data would typically support further easing, policymakers are holding off due to external and domestic risks. The market impact is medium, with short-term volatility expected but a more constructive outlook for EUR/USD and regional FX in the medium term.