Poland’s Monetary Easing: A Strategic Entry Point for Equity and Fixed-Income Investors

The National Bank of Poland (NBP) has embarked on a deliberate easing cycle, cutting its reference rate by 75 basis points since May 2025 amid a clear disinflationary trend. This shift reflects a recalibration of monetary policy to align with weakening economic activity and moderating inflation expectations. In July 2025, the NBP surprised markets by reducing the rate by 25 basis points to 5.00%, with further cuts anticipated in September and November as inflation projections fall closer to its target range [1]. The central bank’s decision underscores a strategic pivot from earlier hawkish stances, driven by a combination of falling energy prices, slowing wage growth, and a broader slowdown in consumer demand [3].

The disinflationary environment has created a window for monetary easing without triggering second-round inflationary pressures. The NBP now forecasts inflation at 4.0% for 2025, down from 4.1% in March, with a gradual decline to 2.4% by 2027 [1]. This trajectory is supported by structural factors, including a maturing post-pandemic recovery and a shift in global commodity markets. However, the central bank remains cautious, emphasizing that future rate decisions will hinge on incoming data, particularly wage growth and core inflation trends [4].

The fiscal landscape, however, introduces a layer of complexity. While the NBP’s easing aims to stimulate growth, Poland’s fiscal position remains fragile. The general government deficit widened to 6.9% of GDP in 2025, exceeding initial projections of 5.5%, due to elevated defense spending (4.8% of GDP) and social programs [1]. Political polarization has further constrained fiscal consolidation efforts, with the government’s 2026 budget projecting a deficit of 6.5% of GDP [2]. These pressures risk undermining the NBP’s inflation-targeting framework, particularly as the government extends electricity price freezes and expands public spending [3].

For investors, this duality presents both opportunities and risks. The rate cuts have already spurred a relaxation in credit conditions, with Polish banks lowering loan criteria and boosting lending activity in Q2 2025 [2]. Equities in sectors sensitive to lower borrowing costs—such as construction, consumer goods, and small-cap banks—appear poised to benefit. Meanwhile, the 10-year Polish bond yield has fallen to 3.8%, making the country’s debt attractive to yield-hungry investors, albeit with caveats about fiscal sustainability [4].

Yet, the interplay between monetary and fiscal policy remains a critical variable. The NBP’s Governor, Adam Glapiński, has warned that fiscal expansion could complicate inflation control, particularly if the government fails to meet its 2028 deficit target of 3% of GDP [1]. This tension highlights the importance of timing for investors: entering the market now captures the tailwinds of monetary easing but exposes portfolios to potential fiscal shocks if consolidation stalls.

In conclusion, Poland’s monetary easing represents a strategic entry point for investors who can navigate the delicate balance between disinflationary momentum and fiscal fragility. The NBP’s data-dependent approach and the government’s commitment to gradual consolidation suggest a measured path forward. However, the success of this strategy will depend on the ability of policymakers to align fiscal discipline with monetary flexibility—a challenge that will define Poland’s economic trajectory in the coming years.

Source:
[1] In a surprise move, the National Bank of Poland cut interest rates [https://think.ing.com/articles/polands-nbp-cuts-interest-rates-next-decision-not-until-september/]
[2] Poland raises 2025 deficit forecast as defence costs weigh [https://www.reuters.com/markets/europe/poland-raises-2025-deficit-forecast-defence-costs-weigh-2025-08-28/]
[3] National Bank of Poland preview: time to react to slowing inflation [https://think.ing.com/snaps/nbp-decision-preview-time-to-react-to-slowing-inflation/]
[4] Poland Cuts Rates, But No Cycle Signal Yet [https://www.devere-europe.com/news/Polands-rate-cut-no-signal-of-easing-cycle-says-centra-bank-chief]