The Monetary Policy Council (MPC) unexpectedly decided to lower interest rates by 25 basis points. This means the reference rate now stands at 5%. The decision surprised most economists—only a few surveyed by Bloomberg had anticipated such a scenario. Moreover, it contradicts earlier statements from MPC members, who had indicated a low probability of a rate cut in July.
Nevertheless, several factors recently supported the case for easing, with the key drivers being a stronger-than-expected decline in inflation in the second quarter and likely very optimistic new inflation projections. According to the Ministry of Finance, inflation in July could drop as low as 3%, which would place it within the National Bank of Poland’s inflation target range (2.5% with a one percentage point deviation). The anticipated decline in July inflation largely results from reduced gas tariffs.
What supported the rate cut?
Besides inflation, other data justified lower interest rates. Firstly, wage growth slowed in May to 8.4% year-on-year from 9.3%. Secondly, the Purchasing Managers’ Index (PMI) for the industrial sector in June fell significantly to 44.8 points, contrasting with the broader European economic recovery trend. Thirdly, inflation has recently tracked below March’s inflation projections, and the latest forecasts are expected to bring even greater optimism about winning the fight against excessive inflation.
All signs indicate the beginning of an interest rate cutting cycle. Another rate cut is highly likely in September, with further reductions possible in the following months of this year. It is expected that rates will fall to around 4.5% this year and reach the target level of 3.5% next year. It is also worth noting that the extremely strong Polish zloty in recent days—with USD/PLN near 3.60 and EUR/PLN around 4.25—contributes to limiting imported inflation.
In connection with the surprise decision today, we are also observing a weakening of the Polish zloty. USD/PLN is rising to 3.62, while EUR/PLN has increased to 4.26. However, these changes remain below a 0.5% depreciation of the zloty.
Source: https://ceo.com.pl/nieoczekiwana-decyzja-rpp-zloty-oslabia-sie-po-ogloszeniu-obnizki-stop-70512
