In a recent announcement, the Monetary Policy Council (MPC) of Poland has officially concluded its tightening cycle, paving the way for potential interest rate cuts in September once certain conditions are met. Adam Glapiński, the governor of the National Bank of Poland (NBP), disclosed this information during a press conference held a day after the MPC’s decision to maintain the rates unchanged for the tenth consecutive time. The move aligns with market expectations and follows 11 consecutive rate increases aimed at tackling inflation. Currently, Poland’s reference interest rate stands at 6.75 percent.
Glapiński stated that a 25-basis-point cut in September is a possibility if there is a 90-percent certainty that inflation will decrease in the coming quarters and years. Another condition is the achievement of a single-digit Consumer Price Index (CPI), which the MPC plans to evaluate after the summer holidays. Glapiński highlighted that inflation has remained stagnant, with no growth in May and June, and June’s CPI at 11.5 percent, marking the lowest level in over a year.
Looking ahead, Glapiński expects consumer inflation to decline to 7-8 percent in the fourth quarter and reach the NBP’s target range of 2.5 percent plus/minus one percentage point in the second half of 2025, barring any unexpected events such as a worsening of the situation in Ukraine. He reiterated his belief in a soft landing scenario for Poland’s economy as it transitions out of high inflation, forecasting a near 0 percent GDP growth rate in the second half of the year, without anticipating a recession.
Glapiński did, however, caution that the industry and trade sectors may face challenges as real wages are expected to increase again in the latter half of the year after recent declines of 2-3 percent. He also noted the possibility of rising costs but expressed confidence that businesses have a safety cushion to offset this impact. He mentioned that in 2022, 50-60 percent of price increases were attributed to companies expanding their profit margins.
According to a flash estimate from the statistics office GUS, Polish consumer prices likely rose by 11.5 percent year-on-year in June, with no change compared to the previous month, following a 13.0 percent year-on-year increase in May.
The NBP’s latest inflation projection, cited in the MPC’s policy statement, indicates that Poland’s average annual consumer inflation has a 50-percent chance of falling within the range of 11.1-12.7 percent in 2023, then narrowing to the band of 3.7-6.8 percent in 2024, before ultimately reaching the NBP’s target of 2.5 percent with a range of 2.1-5.1 percent in 2025.
Poland’s monetary policy stance contrasts with the ongoing hawkish approach of the US Federal Reserve. Federal Reserve Chair Jerome Powell recently hinted at the possibility of further rate hikes to achieve the target inflation rate of 2 percent, albeit at a slower pace. In May, US inflation stood at 4 percent, which is below the Fed funds rate of approximately 5.1 percent.
Meanwhile, the European Central Bank (ECB) raised interest rates by 25 basis points in June and appears determined to continue with rate hikes despite a preliminary CPI reading for the eurozone at 5.5 percent in June, surpassing the ECB’s current rate on main refinancing operations of 4 percent. ECB President Christine Lagarde has indicated that the ECB will likely continue raising rates, suggesting that the peak rate has not yet been reached.
Considering Poland’s main interest rate at 6.75 percent and the preliminary CPI reading of 11.5 percent in June, the decision to end the rate-hike cycle on Friday can be seen as a reflection of the central bank’s confidence in the upcoming downward trajectory of inflation over the coming months.