Poland’s Central Bank Poised for Sixth Rate Cut Amid Low Inflation

Poland’s central bank is preparing for its sixth interest-rate cut of the year, responding to a significant slowdown in inflation. The key interest rate is expected to decrease by 25 basis points to 4%. This would mark the lowest rate since March 2022, as inflation fell to 2.4% in November, down from 4.9% at the beginning of the year. The decision comes as a result of the latest data, which indicated inflation has dipped below policymakers’ target.

According to a survey conducted by Bloomberg, 27 out of 32 economists anticipate this rate reduction. The remaining analysts believe borrowing costs will remain stable. If the predicted cut occurs, it will be the fifth consecutive reduction, reflecting the Monetary Policy Council’s (MPC) efforts to adjust to softer inflation rates.

Economic Impact and Future Outlook

Central bank Governor Adam Glapinski has not dismissed the possibility of further easing, despite not providing a specific timeline for additional cuts. Glapinski, who often influences the direction of the MPC, has indicated that a rate of 4% is reasonable if inflation continues to stabilize. MPC members, including Wieslaw Janczyk and Ireneusz Dabrowski, have also hinted that further reductions in December may be on the table if inflation trends remain favorable.

Economist Juan Orts from Societe Generale SA expressed that the likelihood of the terminal rate remaining at 4% seems unrealistic, given the current inflation forecast. He anticipates that the MPC will confront increasing pressure to lower rates as the inflation outlook remains consistently optimistic through 2026. Orts predicts inflation will stay below the MPC’s target of 2.5% next year, expecting the benchmark rate to drop to 3.5% in the second quarter of 2024, with potential for further adjustments later in the year.

The MPC’s greater willingness to cut rates, including an unexpected reduction in October, has led analysts to revise their expectations. Orts noted, “Actions count more than words, and after the surprise cut in October, it became clear to us that the MPC had a lot more appetite for rate cuts than what we had initially believed.”

Glapinski has previously supported maintaining higher rates through 2024, attributing this stance to the government’s fiscal policies and uncertainties surrounding energy price caps. Recently, however, he has softened his critical rhetoric towards the government. A press conference is scheduled for 15:00 on Thursday, where further insights may be provided regarding the central bank’s future strategies.

As Poland navigates these economic changes, the implications for consumers and businesses could be significant, particularly in sectors sensitive to borrowing costs. The upcoming rate cut may provide relief to borrowers and stimulate economic activity, aligning with the MPC’s broader objectives to foster a stable economic environment.