Poland's Central Bank Pauses Rate Cuts, But More Are Coming

The National Bank of Poland's latest statement signals a readiness for further monetary easing, despite a temporary pause in rate cuts.

The Polish Monetary Policy Council (MPC) has adopted a dovish tone in its latest statement, signaling a clear readiness for further monetary easing despite holding interest rates steady for now.

Policymakers noted that incoming data suggests a potential drop in CPI inflation during the first quarter, with stabilization expected around the National Bank of Poland's (NBP) target level in the following quarters. The MPC also downplayed a recent jump in wage growth, suggesting the council views the uptick as temporary after a year of slowing growth. This interpretation points to a clear bias toward future rate cuts.

Strong Economic Data Justifies a Wait-and-See Approach

The decision to pause comes just three weeks after the MPC's January meeting, with no new official inflation data released in the interim. During this period, however, real economy data came in stronger than anticipated.

Key upside surprises included:

• Industrial and construction output: Growth in December was significantly stronger than market expectations.

• GDP growth: Preliminary estimates for 2025 suggest the economy expanded at a pace close to 4% year-on-year in the fourth quarter.

• Wage growth: December data also beat forecasts, interrupting a downward trend, though this was largely driven by annual bonuses in sectors like mining.

In light of this stronger data, the MPC has adopted a wait-and-see mode. The council requires more time to confirm that the declines in CPI inflation, core inflation, and wage growth are permanent trends.

The Case for Resuming Cuts: Favorable Inflation Outlook

Despite the pause, there appears to be substantial room for further interest rate reductions. The inflation outlook remains favorable, with forecasts indicating that inflation has likely already fallen below 2% year-on-year at the start of 2026.

Inflation is expected to remain below the NBP's target for almost the entire year, averaging 2.1% YoY. In some months of 2026, it could decline to around 1.5%, which is the lower bound of the tolerance range from the 2.5% target. This disinflationary pressure is supported by expectations of continued slowing wage growth, rising imports of inexpensive goods from China, and favorable developments in the food market.

Rate Forecast: A Path to 3.25% by Year-End

The reference rate is projected to be cut from its current 4.00% to 3.25% before the end of 2026. Further rate reductions are expected to resume soon.

March is seen as a suitable moment for the next cut. By then, the MPC will have access to the preliminary inflation reading for January and an updated macroeconomic projection. This new information should reinforce policymakers' confidence that the current disinflation is durable, creating space for further monetary easing, albeit on a smaller scale than in 2025.