In July, the Monetary Policy Council (MPC) lowered interest rates for the second time this year, describing the move as an adjustment. Further cuts can be expected in the coming months, but their pace and timing will depend on the effects of previous decisions and wage growth. The target for the main interest rate is set at 3.5%. These conditions are favorable for borrowers.
“Basically, the Council is largely in agreement that interest rates will fall and should fall in the near future. However, there is ongoing discussion about whether this will be a full cycle or just further adjustment. I am in favor of a short pause and starting the rate-cutting cycle only towards the end of the third or even the fourth quarter. The target interest rate at the end of the cycle would be 3.5%,” said Ireneusz Dąbrowski, member of the Monetary Policy Council, in an interview with Newseria.
In July, the MPC quite unexpectedly cut interest rates by 25 basis points, after keeping them unchanged in June and cutting by 50 basis points in May — the first reduction in a year and a half. As a result, the reference rate of the National Bank of Poland (NBP) has been 5.0% since July 3. Most economists emphasize that this level remains high, as inflation this year has not once reached 5%, and in the second quarter it did not even approach 4.5%. Starting from July, inflation is expected to fall within the target tolerance band due to the base effect (partial unfreezing of energy prices) from last year. In May and July, Professor Adam Glapiński and the MPC’s statement described the changes as rate adjustments rather than the start of a cutting cycle, though the NBP President did not rule out rate cuts.
“This depends heavily on the effects of the cycle, because by changing rates we influence the economic system and will monitor the results, how inflation behaves, including wages, and based on that, the length of the cycle will be estimated,” the economist explained.
The average gross monthly wage in enterprises employing 10 or more people last showed double-digit growth in November 2024. Except for a rather surprising spike in April, wage growth has been slowing for six months. Still, it remains quite high compared to inflation: 8.40% year on year versus 4.0% price growth in May. The lowest growth this year was in March (7.7% vs. 4.9%), though exactly one year earlier, the ratio was 12% to 2.0%. It is important to note that average wages are skewed upward by the highest earners. Median wages in January (data published by GUS with a delay of several months) were 21% lower than the average.
“The pace of wage growth is the decisive parameter. I am waiting for this pace to drop to 6% nominally, then it would be safe for inflation. But there are also various upheavals and geopolitical risks, and we are watching fiscal policy,” said Dąbrowski. “Currently, the biggest threat to inflation is wage growth, which is above the level we would consider target — above 6% continuously in the economy. The second threat is very expansionary fiscal policy.”
NBP interest rates affect Polish households in many ways, including deposit interest rates and the cost of loans denominated in zloty. These rates correlate with market interest rates (WIBOR), which determine consumer debt obligations. The lower the rate, the lower the installment, but also the less attractive the bank’s offer on deposits or savings accounts.
“The situation of borrowers depends on individual agreements with banks, and these have different adjustment periods and amounts, so it is an individual matter. Certainly, as interest rates fall, loan installments decrease,” assured the MPC member.
