Inflation, while still above the acceptable deviation range from the inflation target, appears to be under control. The question mark lies over the level of administered prices next year and the actual effects of Donald Trump’s policy. According to Ludwik Kotecki, a member of the Monetary Policy Council, the discussion on loosening monetary policy should start in March, and over the course of 2025, interest rates should be reduced by less than 1 percentage point.
“We have not yet reached the inflation target of 2.5%, but we are getting closer,” says Ludwik Kotecki in an interview with the news agency Newseria. “It may not be happening very quickly, as the final stretch is the hardest part of reaching the target, but it is clear that inflation in the economy is largely under control, that it will continue to decrease, and that market and price processes in the economy are now at a stable level. Therefore, in 2025, it will be possible to start a serious, responsible discussion about easing monetary policy.”
In November, consumer inflation stood at 4.7% year-on-year, slightly higher than the preliminary estimate at the end of November (4.6%). This figure is lower than October’s 5.0%, but still well above the 3.5% threshold, which represents the upper acceptable deviation from the 2.5% inflation target. In November, inflation was once again driven up by the prices of services, which were 7.2% higher than the previous year, while goods increased by an average of 3.8%. This is significantly lower than in 2022 and 2023, when price dynamics peaked at 18.4%.
As previously announced by members of the Monetary Policy Council, the market expected that a discussion about interest rate cuts would begin in March 2025. However, during the press conference following the December meeting of the Monetary Policy Council, Professor Adam Glapiński, the head of the National Bank of Poland (NBP), announced that discussions on cuts would be postponed to October, with cuts themselves scheduled for 2026. This hawkish turn is reportedly due to the partial freezing of energy prices for households (until September 2025), which, according to the Council Chairman, would delay reaching the inflation target by about six months.
“Discussion about easing monetary policy, I emphasize: discussion, not decision, should, in my opinion, begin in March next year. First, it will be the month when we, as the Council, will have a new inflation projection. Second, we will know more about the U.S. economic policy, which may have a significant impact on the European economy, including Poland, next year,” explains Ludwik Kotecki, appointed to the Monetary Policy Council by the Senate. “Third, we will also have more information about administered prices, which are usually introduced at the beginning of the year, and we will have more up-to-date forecasts on the macroeconomic situation in Poland and our immediate surroundings.”
The NBP’s Economic Analysis Department prepares a comprehensive inflation and GDP projection three times a year (in March, July, and November), specifying the expected percentage ranges for both dynamics over the next two years. According to the November analysis, inflation is expected to be slightly higher, and GDP growth will be slightly lower than economists at NBP predicted in July. In November, two inflation scenarios were presented: one assuming that energy prices for households would remain frozen, and the other assuming full unfreezing of energy prices from January. In the first case, inflation was expected to average 4.3% in 2025, and in the second, 5.6%. It is now known that the government has chosen an intermediate scenario.
“As for the scale of any easing of monetary policy, it seems to me that since the inflation target has still not been achieved, the first decisions on interest rate cuts should still be cautious,” cautions the Monetary Policy Council member. “We should not hastily or too quickly reduce interest rates. The macroeconomic forecasts of the European Economic Forum (EEF) suggest that they see room for cuts of 100 basis points. I think I would be a bit more cautious, but not much more cautious.”
The organizers of the European Financial Congress publish a report titled “Macroeconomic Challenges and Forecasts for Poland” every six months, in June and December. The current report is already the 14th edition. The EEF consensus is based on the opinions of 29 experts and macroeconomists, expressed before the latest conference of the NBP President. According to the consensus, the average annual inflation, which increased by 11.4% year-on-year in 2023, is expected to slow to 3.6% year-on-year this year, and rise to 4.4% year-on-year in 2025. For the next two years (2026 and 2027), the inflation growth rate is expected to decrease to 3.1% and 2.5%, respectively. As inflation falls, interest rates will be lowered. The survey’s average expectations indicate that the NBP reference rate will be reduced from the current 5.75% to 4.7% by the end of 2025, then to 3.8% by the end of 2026, and 3.50% by the end of 2027.
Rate cuts should also be supported by the international environment: the world’s most important central banks have already started their cycles of rate reductions. The European Central Bank has made four cuts since June, totaling 100 basis points (1 percentage point), bringing the deposit rate to 3%. The U.S. Federal Reserve has made two cuts (a total of 0.75 percentage points), with another 25 basis point cut expected on December 18. A surprise came from the Swiss National Bank, which reduced the reference rate by 50 basis points in December (expectations were for a cut half as large). This year, the rate dropped from 1.75% to 0.50%.
“Polish monetary policy is independent of what other banks do, but if the major central banks in the world are cutting rates, and it is assumed that this will continue next year, it means that the so-called disparity, or the difference between Polish and foreign interest rates, will increase,” points out Ludwik Kotecki. “Under unchanged conditions, this could lead to the appreciation of the Polish zloty, meaning the zloty would become stronger. This is obviously good news for importers, as it positively affects inflation, but inflation is already under control. However, it would negatively affect exporters, as it would mean that Polish exports would become less competitive and more expensive for foreign partners.”
