MPC cuts rates and flags inflation risks

MPC cuts interest rates

Today, the Monetary Policy Council decided to cut interest rates by 25bp, with the NBP reference rate now standing at 4.75%. The MPC’s decision was consistent with market expectations, but went against our forecast, which had pointed to a rate stabilisation. 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”, referring to the potentially negative impact of the D. Trump administration’s tariff policy on global economic growth. The Council also noted that “taking into account inflation developments, in the Council’s assessment, it became justified to adjust the level of the NBP interest rates”. The Council also reiterated its assessment that the future level of interest rates will depend on “incoming information regarding prospects for inflation and economic activity”. In the Council’s view, risk factors to low inflation include “fiscal policy, consumption demand recovery and elevated wage growth”. Consequently, we consider the tone of the September press release no more dovish than in July.

Room for further cuts remains limited

Today’s rate cut and the wording of the post-meeting press release indicate that the Council judged the risks to the inflation target stemming from a possible increase in energy prices in Q4 (in connection with K. Nawrocki’s veto of the bill extending the electricity-price freeze) and from a markedly looser fiscal policy in 2025-2026 relative to earlier expectations (see MACROmap of 1/09/2025) as minor. The press release also suggests that the main argument in favour of the cut was the decline in the current inflation, which, according to the preliminary estimate, fell to 2.8% YoY in August from 3.1% YoY in July (see MACROmap of 1/09/2025). In our opinion, however, today’s decision does not signal materially more room for further interest rate cuts in the coming quarters. It is quite likely that the Council will move forward with another 25bp rate cut by the end of the year. If the Council eases monetary policy again in the coming months, the decision will most likely be taken in November, when it reviews the latest inflation projection. 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 October.

Today’s decision by the MPC to cut rates and the press release following today’s Council meeting are, in our view, neutral for the PLN and yields on Polish bonds.