MNI NBP WATCH: Slower Polish Price Growth Means 25Bp Cut Seen

The National Bank of Poland is likely to cut interest rates by 25 basis points Wednesday, lowering the benchmark reference rate to 4.75%, as headline and core inflation continue to moderate. (See MNI EM NBP WATCH: Poland Cuts Rates As Growth, Pay Rises Slow)

The NBP paused its easing cycle in June before lowering rates by a quarter-point in July, and now looks set to return to making “cautious adjustments” when the Monetary Policy Council reconvenes following the summer break.

Headline inflation fell from 3.1% in July to 2.8% last month, with core inflation expected to edge closer to 3% following July’s 3.3% print, to leave both measures comfortably within the Bank’s 2.5% +/- 1 percentage point range.

LABOUR MARKET

Wage growth is slowing, while labour markets have loosened somewhat. Construction remains stagnant. Industrial output, by contrast, is trending upwards, but is still subject to weak external demand, therefore any recovery remains relatively subdued.

Despite this, Poland is on course for GDP of growth of around 3.5% this year, roughly in the middle of the 2.9 – 4.3% range seen by the MPC in July (against 2.9 – 4.6% in the March 2025 projection), as flash seasonally-adjusted quarter-on-quarter figures pointed to a 0.1% rise to 0.8% in Q2, thanks in large part household consumption.

The NBP wrong-footed the market in July when it cut the reference rate to 5.0% While the more benign inflation outlook may prompt governor Glapinski to once again highlight room for more cuts, it seems equally likely that he will reiterate the presence of some inflation risks, perhaps most notably from fiscal policy. Another pause in the easing cycle may therefore come in October.