The Polish zloty sustained its gains on Wednesday after the country's central bank reduced its benchmark interest rate as anticipated. Earlier expectations for the rate cut had grown increasingly uncertain as conflict escalated following attacks on Iran by Israel and the United States.

Earlier on Wednesday, U.S. President Donald Trump suggested providing escorts for oil tankers in the Persian Gulf, alleviating market concerns over energy supplies. This provided a respite for Central and Eastern European currencies, which had experienced significant selling pressure at the start of the week.

The National Bank of Poland lowered its key interest rate by 25 basis points to 3.75% on Wednesday. Analysts noted that while inflation remains stable, the Middle East conflict has introduced a new element of uncertainty into the market.

As of 14:21 GMT, the zloty appreciated by 0.5% against the euro, trading at 4.27 zlotys per euro. This followed a decline on Tuesday, where it had touched its lowest level in over ten months.

On Tuesday, President Trump stated that the U.S. Navy would begin escorting tankers through the Strait of Hormuz—a critical Middle Eastern oil shipping route—if necessary. He added that measures had been taken to provide political risk insurance and financial guarantees for maritime trade in the Gulf region.

A Reuters survey concluded on Monday showed analysts were nearly unanimous in expecting a 25-basis-point rate cut. However, as risk factors emerged, a growing number of analysts began to lean towards the possibility that the central bank might keep the key rate unchanged at 4%. The Polish central bank had cut rates by a cumulative 175 basis points last year.

Analysts from ING wrote on social media platform X, "We expect the remarks from the NBP Governor to be cautious, with the Monetary Policy Council adopting a more hawkish stance while closely monitoring the situation in Iran." The central bank governor is scheduled to hold a press conference on Thursday.

Prices for Polish forward rate agreements saw a slight decline after rising approximately 20-30 basis points last week.

Earlier on Wednesday, a Warsaw-based FX trader commented that the significance of the interest rate decision had been overshadowed by global developments. "To be honest, the market isn't paying much attention to this right now... the focus is on the Middle East situation," the trader said. "I think, after Trump's statement—although it was just a verbal commitment, he said he would insure and protect these tankers—the market has improved somewhat... We will watch to see if a second wave of panic emerges. The night is long, and this is just the beginning."

In Hungary, the forint continued its rise against the euro, gaining 0.1% to trade at 386.15 forints per euro. On Tuesday, the forint had plunged to 391.55 per euro, marking its largest single-day drop in two years.

Analysts pointed out that Hungary has greater exposure to energy shocks compared to other countries in the region. A comment from MBH Bank this morning stated, "On one hand, as a major energy importer, soaring natural gas prices have a clearly negative impact on the forint's performance. Another important reason is that, in the current risk environment over recent months, investors have quickly begun reducing their previously held forint positions, which were attractive due to high interest rates."

Elsewhere in the region, the Czech koruna gained 0.25% against the euro, trading at 24.3550 koruna per euro. This followed a drop in the previous session to a near six-month low of 24.444.

Preliminary data released on Wednesday showed Czech inflation fell further below the central bank's target in February, driven by slowing food price growth and declining energy costs. Overall inflation dropped to 1.4% year-on-year, hitting a new low of over nine months.

Czech Central Bank Vice Governor Jan Frait commented on Wednesday that the repercussions of the attack on Iran could limit the room for interest rate cuts in the Czech Republic.

Central and Eastern Europe Market Overview (CET 15:21)

Currencies Currency Code Latest Previous Daily 2025 YTD Close Change Change Czech Koruna EURCZK= 24.3550 24.4150 +0.25% -0.77% Hungarian Forint EURHUF= 386.1500 386.5000 +0.09% -0.46% Polish Zloty EURPLN= 4.2700 4.2920 +0.52% -1.27% Romanian Leu EURRON= 5.0952 5.0990 +0.07% -0.02% Serbian Dinar EURRSD= 117.3300 117.3700 +0.03% -0.03%

Stocks Index Code Latest Previous Daily 2025 YTD Close Change Change Prague Index .PX 2618.16 2585.7900 +1.25% -2.51% Budapest Index .BUX 123294.95 120688.04 +2.16% +11.04% Warsaw WIG20 Index .WIG20 3329.87 3249.38 +2.48% +4.58% Bucharest Index .BETI 26966.53 26716.13 +0.94% +10.34%

Bonds Bond Code Yield (Bid) Yield Spread vs. Spread Daily Change Bund Change Czech 2Y Govt Bond CZ2YT=RR 3.5840 -0.0130 +144 bps +2 bps Czech 5Y Govt Bond CZ5YT=RR 3.9820 -0.0130 +160 bps +1 bps Czech 10Y Govt Bond CZ10YT=RR 4.5470 -0.0480 +178 bps -4 bps Polish 2Y Govt Bond PL2YT=RR 3.7010 -0.1670 +155 bps -14 bps Polish 5Y Govt Bond PL5YT=RR 4.5180 +0.1040 +213 bps +13 bps Polish 10Y Govt Bond PL10YT=RR 5.2100 -0.0460 +245 bps -3 bps

Forward Rate Agreements (FRA) Country 3x6 6x9 9x12 3-Month Interbank Rate Czech Rep. 3.55 3.53 3.54 3.50 Poland 3.67 3.60 3.61 3.82