Polish Zloty: Dovish NBP tone risks downside – ING

ING economists Rafal Benecki and Adam Antoniak argue that reduced prospects of further tightening by the European Central Bank (ECB) and Federal Reserve (Fed) should ease external pressure on the Zloty. However, they warn that market concerns over a potentially more dovish National Bank of Poland (NBP) are PLN-negative, and with Euro adoption distant, any softening in NBP rhetoric could pose greater downside risks compared with the Forint’s convergence support.

PLN vulnerable to softer NBP tone

"As the likelihood of further rate hikes from the European Central Bank has diminished and additional monetary tightening by the Federal Reserve this year appears increasingly doubtful, the external negative pressure on the zloty should diminish."

"Still, the FX market appears worried that the NBP may turn more dovish soon, which is PLN negative."

"By contrast, the National Bank of Hungary’s dovish rhetoric has had little impact on the forint, which continues to benefit from a strong convergence play."

"With euro adoption still a more distant prospect in Poland, however, any further softening in the NBP’s tone poses a greater downside risk to the zloty."

"While Governor Adam Glapiński may strike a somewhat dovish tone at Thursday’s press conference, the debate over potential rate cuts is only likely to gather momentum after the summer."