Poland's Monetary Policy Crossroads: Is July 2025 the Turning Point for Rate Cuts?

The National Bank of Poland (NBP) has sent a clear signal to markets: a potential rate cut could arrive as soon as July 2025, marking a pivotal shift in its monetary policy stance after years of aggressive tightening. With inflation cooling and economic growth softening, Governor Adam Glapiński and the Monetary Policy Council (MPC) are now walking a tightrope between supporting recovery and maintaining price stability. Here’s what investors need to know.

The Case for a July Rate Cut: Inflation and Economic Data

The NBP’s May 2025 decision to cut rates by 50 basis points to 5.25%—the first reduction since mid-2023—was framed as an “adjustment,” not the start of a full easing cycle. However, recent data strongly suggests July could be the next milestone.

• Inflation Trends: Headline inflation fell to 4.2% year-on-year in April 2025, down sharply from a peak of 15.2% in early 2023. The NBP now projects inflation to drop to 3.5% by Q3 2025, aligning with its 2.5% target. Key drivers include:
• A high base effect from last year’s food VAT hike, which inflated April 2024 prices.
• Lower global oil prices and a stronger Polish zloty, reducing import costs.

• Slowing wage growth (7.7% YoY in March 2025), though still elevated relative to productivity.

• Economic Softness: First-quarter 2025 GDP growth disappointed, with industrial production and retail sales lagging expectations. Analysts attribute this to lingering U.S. tariffs on Polish exports and cautious consumer sentiment amid high household debt.

The NBP’s Strategy: Gradual Easing, Data-Dependent

The NBP has emphasized a cautious approach, with Governor Glapiński stating that July 2025 will hinge on updated inflation and GDP data. Key takeaways:
- June 2025 Pause: No cut is expected in June, as the NBP awaits fresh data.
- July Cut Likelihood: A 25-basis-point reduction is probable if inflation trends hold, followed by further cuts in September and November 2025.
- Terminal Rate Path: Analysts project the policy rate could fall to 4.5% by end-2025 and 3.75% by late 2026, assuming no major shocks.

Risks and Challenges

While the July cut seems plausible, uncertainties linger:
- Energy Prices: Volatility in global energy markets could reignite inflation, especially if Poland’s government lifts subsidies or faces supply disruptions.
- Fiscal Policy: A 2025 fiscal deficit of 5.7% of GDP raises concerns about crowding-out private investment and inflationary pressures.
- Global Trade: U.S. tariffs on Polish goods, particularly steel and solar panels, threaten to dampen export-driven growth.

Implications for Investors

Poland’s rate-cut timeline offers opportunities and risks for portfolios:
- Fixed Income: Bond yields may drift lower, favoring long-duration securities. The 10-year Polish government bond yield, currently at 4.6%, could decline further if inflation stays subdued.
- Equities: Consumer discretionary and cyclical sectors (e.g., retail, construction) may benefit from cheaper borrowing costs, though earnings growth remains constrained by weak GDP.
- Currency: The zloty could weaken if rate cuts outpace other central banks, but a strong economy and low unemployment (3%) provide resilience.

Conclusion: July 2025 Is a Critical Crossroads

The NBP’s July meeting will likely confirm the start of a gradual easing cycle, driven by inflation’s downward path and soft economic data. With projections showing a 3.4% GDP growth rate in 2025 and inflation nearing target, markets are primed for rate cuts. However, investors must remain vigilant to risks like energy price spikes or fiscal overreach.

The NBP’s cautious 25-basis-point increments reflect a balance between supporting recovery and guarding against setbacks. For now, July 2025 is the key date to watch—a decision that could set the stage for Poland’s economic trajectory in the years ahead.

In summary, Poland’s monetary policy pivot is underway, but its success hinges on data alignment and external stability. For investors, this is a story of cautious optimism—and the need to stay data-aware.