Polish Inflation Slows Again, Tilting Rate Outlook to Easing

q2ez[sk2xxtxvmjmlvj2z{p}_media_dl_1.png Central Statistical Office, Bloo

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(Bloomberg) — Poland’s inflation slowed for a third straight month to the lowest level since the start of the war in Iran, further diminishing the prospects for interest-rate increases and tilting the outlook toward monetary easing.

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“Following today’s data release, the probability of interest rate hikes has fallen to near zero, while the likelihood of a cut has risen significantly,” said Monika Kurtek, chief economist at Bank Pocztowy SA. 

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The consumer price index increased 2.5% in June from a year ago, compared with 3.1% in May and a median forecast of 2.7% in a Bloomberg survey. The zloty fell to the weakest level in three-months against the euro following the data, while local-currency government bonds rallied.

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The figures confirm that the impact of the Middle East conflict on prices in Poland, a key central European energy importer, hasn’t been as acute as feared, limiting the need for tighter monetary policy. Regional peers Hungary and the Czech Republic have even lower headline inflation.

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The months-long slowdown in inflation has been reflected in Polish policymakers’ progressively less hawkish rhetoric. Governor Adam Glapinski said in May that rates were “high enough.”

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“Monetary Policy Council is likely to grow increasingly vocal about interest rate cuts – if not this year, then next,” said MBank SA economists, led by Marcin Mazurek.

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The central bank is likely to keep interest rates on hold over the next several meetings, according to Andre Pacheco, chief strategist at JB Drax Honore UK Ltd. A slowdown in economic growth or core inflation could pave the way for cuts, however, particularly after June marked the fourth consecutive month in which inflation undershot expectations, he said.

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The zloty weakened 0.3% against the euro in Tuesday morning trading, while yields on the country’s benchmark 10-year bonds dropped to the lowest level since early March. 

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Zloty forward-rate agreements, derivatives used to bet on rate changes, are showing bigger chances for a cut over the next months than a hike. 

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The longer-term outlook for Polish inflation may be marred by rising fertilizer prices, according to analysts at Credit Agricole Bank Polska SA. They predicted CPI at 3.8% next year and 2.8% in 2026. Policymakers target inflation at 2.5%, plus/minus one percentage point.

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—With assistance from Konrad Krasuski.

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(Updates with comments starting in the second paragraph.)

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