The Polish Monetary Policy Council (RPP) has announced its decision for June: interest rates will remain unchanged. What does this mean for the Polish economy? When could we expect further rate cuts? How did the Polish złoty respond? Michał Stajniak, Deputy Director of Analysis at XTB, offers insights in the following commentary.
The RPP’s decision to keep interest rates at current levels was in line with both market expectations and previous statements made by Council members. During its May meeting, the Council had lowered rates by 50 basis points – the first cut since autumn 2023. Now, the next possible date for a rate reduction is July, when the latest inflation projections will be released.
Council members have repeatedly stated that more time and data are needed before deciding on another rate cut. Still, the expected cut in July or September is likely to mark the beginning of a cycle of interest rate reductions. Inflation in Poland dropped to 4.1% year-over-year in May, and current projections suggest it could decline toward the target range faster than forecasted in March.
However, certain risk factors could slow the pace of rate cuts. One is the recent rebound in wage growth – which accelerated to 9.3% year-over-year in April, up from 7.7% in March. Another is uncertainty surrounding Poland’s fiscal outlook. If the government significantly increases spending without raising taxes, it could lead to rising debt and inflationary pressure. NBP President Prof. Adam Glapiński has repeatedly emphasized that expansive fiscal policy will be taken into account in future decisions.
Markets currently expect one rate cut within the next three months. Over a 12-month horizon, the expected interest rate is around 4.0%, which would imply five cuts of 25 basis points each from the current level. It’s worth noting that Glapiński stated at the last meeting that there is room for rates to fall as low as 3.5%.
The Polish złoty remained stable following the announcement but has weakened slightly since the beginning of the week due to political turbulence and uncertainty over future cooperation between the government and the new opposition-backed president. The exchange rate stands at PLN 3.76 to the US dollar and PLN 4.28 to the euro.
Source: CEO.com.pl – RPP Maintains Interest Rates, Cuts Possible in July
