Krakow and Lodz face rate-risk pressure in Poland, S&P says
Polish cities Krakow and Lodz remain exposed to higher borrowing costs because floating rate debt accounts for a large share of their obligations. Immediate pressure on their ratings is unlikely if interest rates rise only moderately, but a stronger and sustained increase could weigh on their financial profiles.
Highlights
- S&P Global Ratings stated Krakow and Lodz's ratings are stable for now, but a 2022-style rate surge could structurally pressure their finances.
- S&P expects the National Bank of Poland to keep its reference rate at 3.75% through 2029, limiting rate-driven credit stress in the near term.
- The six-month Warsaw Interbank Offered Rate has neared 4%, its highest since December 2025, increasing refinancing and debt-servicing risks for Polish municipalities.
Rate outlook and municipal debt exposure
According to S&P Global Ratings, its ratings on Krakow and Lodz are unlikely to face immediate pressure if interest rates in Poland increase moderately, even though both cities have a predominance of floating rate debt.The ratings firm said a more pronounced rise in market rates, back to the highs seen in 2022, could structurally pressure the cities' financials if such conditions are sustained. The report does not constitute a rating action.
Polish market context and potential impact
Polish market rates have increased in recent weeks, in line with broader global trends. S&P said it expects the National Bank of Poland to keep its reference rate unchanged at 3.75% through 2029.At the same time, the six-month Warsaw Interbank Offered Rate, Poland's key interbank lending rate, has approached 4%, a level not seen since December 2025. That backdrop suggests refinancing and debt-servicing conditions for local governments could become more challenging if market rates continue to climb beyond moderate levels.
Mario Draghi’s warning on the trade-off between inflation control and debt sustainability highlighted how keeping interest rates above growth for too long can worsen public debt dynamics and lift borrowing costs. Our publication previously noted that central banks may still have multiple viable anti-inflation paths, and that clearer communication can narrow market rate expectations and limit unnecessary tightening that could undermine investment and longer-term growth.
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