Poland’s Central Bank Policy and the Implications of Energy Price Caps for Emerging Market Investors

The National Bank of Poland (NBP) has entered a critical phase in its monetary policy cycle, marked by a 25-basis-point rate cut in September 2025, reducing the benchmark rate to 4.75% [1]. This adjustment reflects a delicate balancing act between cooling inflation and supporting an economy that remains resilient despite global headwinds. For emerging market investors, the interplay between the NBP’s cautious approach to rate cuts, the phasing out of energy price caps, and Poland’s macroeconomic fundamentals presents both opportunities and risks.

Inflation Control: A Fragile Equilibrium

According to a report by Bloomberg, inflation in Poland fell to 2.8% in August 2025, the lowest level since mid-2024, and now aligns with the NBP’s target range of 2.5% ± 1 percentage point [2]. This decline has been driven by easing energy costs and a moderation in core inflation. However, the Monetary Policy Council (MPC) has emphasized that the inflationary outlook remains fragile. Governor Adam Glapiński highlighted during a press conference that “loose fiscal policy” and wage growth pose significant risks to price stability [3].

The phasing out of electricity price caps in 2025 is a double-edged sword. While the NBP’s rate cut aims to offset upward inflationary pressures, the OECD projects that headline CPI inflation will rise to 4.1% for the year before moderating to 2.6% in 2026 [4]. This trajectory suggests a short-term spike in energy costs could force the NBP to delay further easing, even as long-term inflation trends appear manageable.

Fiscal Policy: A Thorn in the Side of Monetary Easing

Poland’s 2026 budget plan, which includes a large deficit and rising public debt, has drawn sharp criticism from the NBP. As stated by Reuters, Glapiński described the fiscal stance as “extravagant,” warning that it could limit the scope for rate cuts and create a “self-fulfilling inflationary spiral” [5]. This tension between monetary and fiscal policy underscores a key risk for investors: if the government’s expansionary approach persists, the NBP may be forced to prioritize inflation control over growth support, potentially dampening economic momentum.

Despite these concerns, Poland’s macroeconomic foundation remains robust. The economy grew by 2.9% in 2024, driven by household consumption and EU-funded infrastructure projects, and is projected to expand by 3.1% in 2025 [6]. Public debt stands at 55.3% of GDP, well below the EU average, and the country’s access to the EU’s Recovery and Resilience Facility (RRF) provides a structural tailwind. However, political polarization and administrative bottlenecks threaten to slow the absorption of RRF funds, which could temper growth in the medium term.

Strategic Entry Points for Investors

For capital positioning ahead of October’s potential rate cut, investors should focus on three key dynamics:
1. Energy-Linked Sectors: The phasing out of price caps will likely boost utility and energy infrastructure stocks in the short term, though inflationary pressures may weigh on consumer discretionary sectors.
2. Government Bonds: A cautious NBP may delay further rate cuts if fiscal risks materialize, offering a window for investors to position in Polish government bonds, which currently yield 4.5% (as of September 2025).
3. Currency Exposure: The zloty has stabilized against the euro, supported by strong current account surpluses. A rate cut in October could trigger short-term volatility, but the currency’s long-term trajectory remains tied to Poland’s fiscal discipline.

The NBP’s October decision will hinge on two critical factors: the pace of energy price normalization and the government’s fiscal adjustments. If energy prices stabilize and the budget deficit narrows, a second 25-basis-point cut could follow. However, any signs of fiscal overreach or a sharper-than-expected inflation rebound would likely prompt a pause in easing.

Conclusion: Navigating Uncertainty with Caution

Poland’s investment landscape is shaped by a central bank walking a tightrope between inflation control and growth support. While the September rate cut signals a shift toward accommodative policy, the MPC’s warnings about fiscal risks highlight the need for vigilance. Emerging market investors should adopt a phased approach, prioritizing sectors insulated from energy volatility and leveraging the zloty’s relative stability. As the October decision looms, the key will be monitoring the interplay between energy price caps, fiscal policy, and inflation data—a dynamic that could redefine Poland’s attractiveness in the region.

Source:
[1] Polish central bank seen cutting key rate by 25 bps on ... [https://www.reuters.com/business/polish-central-bank-seen-cutting-key-rate-by-25-bps-wednesday-2025-09-01/]
[2] Poland Cuts Rates as Soft Inflation Outweighs Fiscal Risks [https://www.bloomberg.com/news/articles/2025-09-03/poland-cuts-rates-as-soft-inflation-outweighs-fiscal-risks]
[3] The door to a potential rate cut in Poland in October is still open [https://think.ing.com/snaps/the-nbp-is-cautious-but-the-door-to-a-cut-in-october-is-still-open]
[4] OECD Economic Outlook, Volume 2025 Issue 1: Poland [https://www.oecd.org/en/publications/oecd-economic-outlook-volume-2025-issue-1_83363382-en/full-report/poland_2573928e.html]
[5] Polish central bank seen cutting key rate by 25 bps on ... [https://finance.yahoo.com/news/polish-central-bank-seen-cutting-040427304.html]
[6] Scope affirms Poland's A rating with a Stable Outlook [https://www.scoperatings.com/ratings-and-research/rating/EN/178918]