MPC cuts interest rates
Today, the Monetary Policy Council decided to cut interest rates by 25bp, with the NBP reference rate now standing at 3.75%. The MPC’s decision was consistent with both our forecast and market expectations. In the post-meeting statement, the Council noted that “energy commodity prices have risen recently” and “the outlook for global activity and inflation is subject to uncertainty, related, in particular, to the geopolitical situation”. The Council emphasised that “taking into account inflation developments and its outlook for the subsequent quarters, in the Council’s assessment, it became justified to adjust the level of the NBP interest rates”. The MPC also noted that annual wage growth in the enterprise sector “was markedly lower than in the previous month”. The Council again outlined the main risk factors for the inflation outlook, namely „fiscal policy, expected recovery of demand in the economy, further developments in wage growth as well as macroeconomic situation abroad – including changes in global commodity prices and inflation, amid geopolitical tensions – remain risk factors for inflation outlook”.
NBP projection: stronger economic growth without excessive inflationary pressures
In accordance with the NBP’s March projection, prepared under the assumption of unchanged NBP interest rates and incorporating data available up to 19 February 2026, there is a 50-percent probability that inflation will be in the range of 1.6-2.9% in 2026 (vs. 1.9-4.0% in the November 2025 projection), 1.1-3.7% in 2027 (vs. 1.1-4.1%) and 0.9-4.0% in 2028. Projected inflation in 2026-2027 has therefore been revised down compared with the November projection, which in our view was mainly due to a lower starting point. According to the projection, expected inflation will remain consistent with the inflation target (2.5% +/- 1 pp) through the end of 2028. It should be noted, however, that due to the above-mentioned cut-off date for the assumptions used in the projection, the projected inflation path most likely does not yet incorporate the impact of the war in Iran and tensions in the Middle East on energy prices and inflation (detailed projection data will be published by the NBP on Friday). At the same time, the projection implies a 50-percent probability that GDP growth will be in the range of 3.1-4.7% in 2026 (vs. 2.7-4.6% in the November 2025 projection), 2.0-3.8% in 2027 (vs. 1.5-3.7%) and 1.8-4.1% in 2028. Projected economic growth in 2026-2027 is therefore higher than expected in the November projection. According to the projection, however, stronger economic growth will not be accompanied by excessive inflationary pressures.
April may see pause in monetary policy easing cycle
In our view, the content of the MPC’s post-meeting statement suggests that the main arguments for resuming monetary policy easing were the decline in inflation in January to 2.2% YoY from 2.4% in December last year, the results of the March inflation projection discussed above and signals of weakening wage pressures in the enterprise sector. 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”. In our view, the outbreak of war in Iran and the rise in tensions in the Middle East, which have contributed to a significant increase in oil and gas prices indicate a substantial upside risk to the inflation path projected in the March NBP projection. At present, it is difficult to assess how long these commodity prices will remain elevated, as this will depend to a large extent on the course of military operations in the Persian Gulf region and the security of shipping in the Strait of Hormuz. However, it can be expected that over a one-year horizon the impact of the commodity shock on inflation will fade, which would support further monetary policy easing. We maintain our assessment that the target level of the NBP reference rate consistent with macroeconomic equilibrium is 3.50%. This means that in the coming months the MPC will decide on one more interest rate cut, which will bring the monetary policy easing cycle to an end. However, given the geopolitical situation and the increase in energy commodity prices, we believe that the probability of interest rates remaining unchanged in April has increased significantly. A. Glapiński’s press conference tomorrow should shed more light on the monetary policy outlook.
We believe that today’s MPC decision to cut interest rates by 25bp and the wording of the press release published after the Council’s meeting are slightly negative for the PLN and yields on Polish bonds.
