Another interest-rate cut

Another interest-rate cut

Today, the Monetary Policy Council decided to cut interest rates by 25bp, with the NBP reference rate now standing at 4.25%. The MPC’s decision was consistent with market expectations and our forecast. In the press release published after the meeting, the Council noted once again that “the outlook for global activity and inflation is subject to uncertainty, related, among others, to changes in trade policies”, signalling the potentially negative impact of D. Trump administration’s tariff policy on global economic growth. The Council also emphasised that “taking into account a decline in inflation and an improved inflation outlook for the coming quarters, in the Council’s assessment, it became justified to adjust the level of the NBP interest rates”. The MPC also reiterated its assessment that the future level of interest rates will depend on “incoming information regarding prospects for inflation and economic activity”. Once again, the Council pointed to three main risk factors to low inflation: “fiscal policy, recovery of demand in the economy and elevated wage growth”. In our view – similarly to October – the tone of the press release following the Council’s November meeting is ambiguous, and the MPC’s policy stance remains unclear.

NBP projection envisages stable inflation close to target in 2026-2027

In accordance with the NBP’s November projection, prepared under the assumption of unchanged NBP interest rates and taking into account data available until 15 October 2025, there is a 50-percent probability that the annual price growth will be in the range of 3.6-3.7% in 2025 (vs. 3.5-4.4% in the July 2025 projection), 1.9-4.0% in 2026 (vs. 1.7-4.5%) and 1.1-4.1% in 2027 (vs. 0.9-3.8%). Thus, the projected inflation for 2026-2027 has not changed materially compared with July, despite likely lower fuel price assumptions reflecting the decline in oil prices seen in recent months. The projection shows inflation remaining within the tolerance band around the inflation target (2.5% +/- 1 pp) to the end of 2027. It also indicates that inflation is most likely to return close to target in H1 2027, i.e. within the monetary policy transmission horizon (NBP will present detailed projection data this Friday). Meanwhile, the annual GDP growth – according to the projection – will be with a 50-percent probability in the range of 3.1-3.8% in 2025 (vs. 2.9-4.3% in the July 2025 projection), 2.7-4.6% in 2026 (vs. 2.1-4.1%) and 1.5-3.7% in 2027 (vs. 1.3-3.7%). The GDP growth forecasted in the projection for 2026 is thus higher than in the July projection, reflecting a higher starting point (GDP growth in Q3 this year was likely well above what July’s projection assumed). The outlined GDP growth path for 2026-2027 is consistent with our forecast.

Time for a pause in the easing cycle

The wording of today’s post-meeting press release suggests that the main arguments for easing were the flash October inflation reading coming in below expectations (2.8% YoY vs. a market consensus of 3.0%) and the November NBP projection pointing to limited inflationary pressures in 2026-2027. In our view, the room for further rate cuts in the coming quarters remains limited, as the November projection points to inflation stabilising in 2026-2027 at a level close to the MPC’s target. Consequently, we maintain our scenario in which the target NBP reference rate consistent with macroeconomic equilibrium is 4.00%. Accordingly, we expect one more, and final, 25bp cut in Q1 2026. This scenario is supported by our short-term inflation forecast, which assumes that price growth, lifted by low base effects in food and fuel, will rise to 3.5% YoY in Q4 2026. A. Glapiński’s press conference tomorrow should shed more light on the monetary policy outlook. We expect the NBP Governor to tone down expectations for another rate cut in December.

We believe today’s rate cut and the post-meeting press release are neutral for the PLN and yields on Polish bond.