The timeline for interest rate cuts is being pushed further into the future. However, there is still a chance that they could take place as early as the second half of this year.
Market expectations for rate cuts are more optimistic than those of the Polish Monetary Policy Council (RPP) and analysts. Investors anticipate that over the next 12 months, three rate cuts totaling 75 basis points will occur.
“The primary difference in expectations regarding rate cuts is that institutional investors approach inflation and bond markets differently—they need to anticipate market developments before they happen,” says Maksymilian Kuch, equity market analyst at XTB, in an interview with MarketNews24. “Currently, the market is pricing in between one and two cuts for this calendar year, and by 12 months from now, that number is expected to rise to three.”
This is particularly important for investors as Polish bonds have been highly attractive due to their high yields and the strength of the złoty. Entering 2025, Poland’s currency was relatively undervalued, making Polish assets even more appealing.
Inflation Remains Above Target
Inflation in Poland remains nearly twice as high as the target rate. Meanwhile, economic growth appears solid, making it unlikely that the Monetary Policy Council (RPP) will rush to signal interest rate cuts.
NBP President Adam Glapiński has repeatedly stated in recent meetings that the timing for cuts has been pushed further into the future. This message will likely be reiterated at the upcoming press conference on Thursday.
Still, some RPP members believe a rate cut is possible this year:
- Henryk Wnorowski sees potential for cuts in 2024.
- Ludwik Kotecki, who previously dismissed early cuts, now believes discussions could begin as soon as March, when inflation projections are released.
- Iwona Duda suggests that a cut could be justified by the end of the year.
On the opposing side, key policymakers argue against cuts:
- RPP Chairman Glapiński and Ireneusz Dąbrowski warn about the impact of rising wages on inflation.
- Joanna Tyrowicz, the most hawkish member of the RPP, emphasizes that Poland has not met its inflation target for the past three years and likely won’t achieve it for another two years, which she believes rules out the possibility of rate cuts.
Waiting for March and July Reports
Given this divided stance, analysts suggest waiting until at least March before making further speculations, as the NBP will publish its updated inflation forecast then. However, concrete indications regarding rate cuts are more likely to emerge after the July report.
“One major factor to watch in the coming weeks is Donald Trump’s potential implementation of tariffs, which could have significant inflationary consequences. The March NBP report will provide a clearer picture of these impacts,” adds the XTB analyst. “However, the base-case scenario for many analysts is that we will not see any rate cuts this year.”
RPP’s February Meeting: A Slightly Hawkish Tone
At its February meeting, the RPP kept rates unchanged, and the statement following the meeting had a slightly hawkish tone. The council emphasized that:
“Over the next few quarters, inflation will remain significantly above the NBP’s target, influenced by previous energy price increases, rising excise duties, and higher prices of administratively regulated services.”
The council also stressed that inflation should return to the NBP’s target in the medium term, provided that:
- The current level of interest rates is maintained.
- Wage growth gradually slows.
However, the RPP also listed several uncertainties that could impact this outlook, including:
- The lifting of energy price caps in the second half of the year.
- Inflationary pressures from wage growth amid a recovering economy and low unemployment.
- The impact of global trade policy changes on major economies.
July Report Could Determine the Timeline for Rate Cuts
By Q3 2025, the NBP’s July projections will provide more clarity on whether inflation will return to target levels by Q4 2026, following a temporary increase due to the energy price cap removal.
In previous statements, NBP officials assured that inflation would remain low, but it unexpectedly rose. When inflation exceeded 18%, wages struggled to keep up, but in recent months, the situation has shifted. Wage growth is now in the double digits, while December’s inflation stood at 4.7%. This strong consumer demand could drive inflation higher again.
“A key factor will be how much real wage growth translates into increased consumption,” says M. Kuch from XTB. “Investors focusing on the Polish market are betting on consumer goods sector stocks, but there is also a possibility that consumers will prioritize rebuilding their savings instead.”
Source: CEO.com.pl
