Disappointing economic data in the first quarter and inflation now half of what it was during the last rate cut are strong reasons to lower interest rates at the May meeting, argues Ludwik Kotecki, a member of Poland’s Monetary Policy Council (RPP). According to Kotecki, the initial move could be a 50 basis point cut, with the potential for double that amount by the end of the year. He also points to heightened global uncertainty, driven by the policies of the U.S. administration, as another factor supporting monetary easing.
“Inflation now appears to be largely a thing of the past. Of course, it remains elevated, but all forecasts suggest we will reach the inflation target, and the issue will fade by the first half of next year,” Kotecki told Newseria news agency. “The last interest rate cut took place in October 2023, when inflation was around 10%. Today it’s below 5%. That’s the first reason why interest rates can and should be lowered—cautiously, but without delay.”
Back in 2020, after five years of holding rates steady, the Monetary Policy Council slashed them nearly to zero in response to the economic collapse caused by the pandemic and lockdowns. Then, 18 months later, the Council began a rapid tightening cycle, raising rates by 665 basis points over the course of a year to levels unseen since 2002. It took another year to lower rates by 100 basis points in two moves. Since then, despite clear inflationary decline and rate cuts by both the European Central Bank (ECB) and the U.S. Federal Reserve (Fed), the RPP has firmly maintained the status quo. NBP President Adam Glapiński even insisted that the rate-cutting debate wouldn’t begin until 2025. However, his tone changed notably following the RPP’s April meeting, suggesting a majority in the Council—including the president himself—now favors lowering rates.
“The second argument lies in the state of economic activity. Recent indicators suggest the economy is underperforming in areas like industrial output, sales, employment, and wage growth. The economy is simply not firing on all cylinders,” Kotecki said during the European Economic Congress in Katowice. “If inflation is no longer a threat and we have an opportunity to support the economy by cutting rates, the time to act is now.”
Economists have described Q1 economic data as moderate. Following an annual adjustment to the inflation basket by Poland’s Central Statistical Office (GUS) in March, inflation turned out to be 0.5 percentage points lower than the National Bank of Poland’s own forecast. Inflation stood at 4.9% year-on-year in January, February, and March, and it appears to be on a declining path. Meanwhile, data on industrial production, construction, and retail sales were disappointing. Lowering interest rates would reduce borrowing costs for businesses and investments, potentially stimulating economic activity. The next Monetary Policy Council meeting is scheduled for May 6–7.
“I expect—and hope—that the decision will be made to lower rates. The real debate, in my view, will be about the scale of the cut, not whether it should happen,” Kotecki added. “I can see a cut of 25 or 50 basis points in May, with the topic revisited in July, once a new inflation projection is released. If it confirms the downward trend, that would open the door to another rate cut. I see room for a total reduction of up to 100 basis points by the end of the year.”
Although Polish entrepreneurs have consistently proven their ability to adapt to changing conditions, stagnation in the eurozone—and particularly in Germany, Poland’s largest trading partner—is beginning to impact exporters’ revenues and profits. The German economy has been hit hard by the loss of cheap gas from Russia and has posted two consecutive years of GDP decline (albeit slight). While the German government initially forecast 1.1% growth for 2024, that estimate was lowered to 0.3% in January and has now dropped to zero. On top of that, protectionist measures introduced by Donald Trump—often in a chaotic and unpredictable manner—are set to negatively impact the European economy, both through direct tariffs and disruption of trade with China.
“In addition to domestic factors, the external environment is another reason why we must seriously consider cutting interest rates. We are facing heightened uncertainty in the global economy—particularly in the U.S., where the Trump administration’s erratic policies are already generating significant instability,” said Kotecki. “This will undoubtedly have a negative impact on global economic growth, including in Europe. So instead of the recovery we’ve been hoping for in the EU, the eurozone, and Germany, we may face yet another year of weak growth, which will affect our own economic activity. In this context, cutting rates is absolutely the right move—it could help the economy navigate the challenges ahead.”
