Poland's Rate Cut Path: Assessing the Case for an Early 2026 Pivot

The structural shift toward a more accommodative policy is now in motion. The case for an early 2026 pivot hinges on two pillars: a decisive inflation read and a dovish policy signal. The December data provides the first, concrete trigger. The headline consumer price index fell to 2.4% year-over-year, marking the lowest level since April 2024 and closing the year comfortably within the National Bank of Poland's (NBP) 2.5% target range. This was a slight miss on the consensus but a clear victory for the central bank's tightening cycle, which had pushed the benchmark rate to 4% earlier in the year.

This data point has already begun to reshape the policy debate. The Monetary Policy Council (MPC) member with the most explicit dovish tilt, Ludwik Kotecki, has framed the situation. He told Bloomberg that there is room for further rapid interest rate cuts and explicitly assumes that in February the MPC will resume its activities from last year. His expectation is for a quarter-point reduction next month, signaling that the pause is viewed as temporary by a key policymaker.

Governor Adam Glapinski has echoed this sentiment, though with more measured language. He acknowledged that the slowdown in inflation is sustainable and that there is "some scope" to reduce rates further. While he declined to commit to a February date, his framing of the situation as one of "some scope" for easing, rather than a firm plan, leaves the door open for an early move. The combination of a below-target inflation figure and a council member's clear call for February action creates a plausible setup for a pivot. The central bank is now positioned to act on a confirmed, sustainable slowdown, using the first quarter of the year to begin the easing cycle that was paused last year.

The Structural Backdrop: Growth, Wages, and Fiscal Pressure

The dovish inflation signal provides a clear trigger, but the NBP's pivot path will be shaped by the broader economic landscape. This backdrop presents a classic trade-off: strong near-term growth and persistent wage pressures against a backdrop of fiscal strain, all of which will constrain the central bank's room to maneuver.

First, the growth outlook is a double-edged sword. The economy is projected to remain robust, with GDP expanding at 3.5% in 2026. This strength is driven by a final surge in EU-funded investment, which will support public spending and help offset a slowdown in private consumption. However, this momentum is expected to fade, with growth moderating to 2.8% in 2027. For the NBP, this means an early cut carries a clear trade-off. While inflation is cooling, cutting rates now risks fueling the already-strong 2026 expansion, potentially setting the stage for renewed inflationary pressure later. The central bank must balance the immediate relief of lower borrowing costs against the risk of overheating a growth engine that is already set to slow sharply next year.

Second, wage growth remains a persistent inflationary risk. The latest data shows corporate sector wages rising 6.6% year-on-year in October 2025. While this marks a slight easing from recent highs, it is still well above the long-term trend and significantly above the 2.9% headline inflation forecast for 2026. This gap between wage and price growth is a key mechanism for second-round inflationary pressures. The NBP will be watching this closely; any sign that wage gains are accelerating again would directly challenge the case for an early pivot.

Finally, fiscal policy limits the government's ability to provide stimulus, increasing the importance of monetary easing. The general government deficit is forecast to remain elevated, at 6.3% of GDP in 2026, following a rise to 6.8% in 2025. This expansionary fiscal stance, driven by high spending on social benefits and defense, leaves little room for additional stimulus. It also means that the burden of managing economic cycles falls more heavily on the central bank. The NBP's pivot, therefore, is not just about inflation; it is also about providing a policy offset when fiscal space is constrained.

The bottom line is that the structural headwinds are real. The NBP has a clear inflation trigger, but the path to a sustained easing cycle is complicated by the need to manage growth, contain wage-driven inflation, and operate within a fiscal framework that offers limited alternative support. The February move, if it happens, will be a calculated step into this complex terrain.

Financial Market Impact and Valuation Scenarios

The policy pivot now has a clear market mechanism. If the Monetary Policy Council follows through on the February signal, the immediate impact will be a sharp repricing of fixed income. A quarter-point cut would directly lower the benchmark rate, triggering a sharp decline in Polish government bond yields. This would reduce borrowing costs for both the state and corporates, providing a tangible economic benefit. For the government, it eases the fiscal burden on its already-expanding debt, which is projected to climb to 69.2% of GDP by 2027. For companies, lower yields could stimulate investment and support equity valuations.

The currency market will face a different kind of pressure. The primary driver of any zloty depreciation would be the policy pivot itself, as lower interest rates typically reduce the asset's appeal to foreign investors. However, this risk could be exacerbated by the persistent wage growth that remains a structural inflationary headwind. With corporate sector wages still rising at 6.0% in 2027, any sign that the central bank's easing cycle is accelerating could fuel concerns about second-round effects, further pressuring the currency. The zloty's path will thus be a tug-of-war between the policy shift and underlying domestic price pressures.

Looking ahead, the implied easing path is more aggressive than the initial February cut suggests. Governor Glapinski's cautious "some scope" contrasts with MPC member Ludwik Kotecki's explicit forecast. He stated there is room for at least 50 basis points in easing over the course of 2026, especially if inflation runs persistently below target. This suggests a potential for a second cut later in the year, assuming the 2026 inflation forecast of 2.9% holds. The central bank's dilemma is clear: it must manage the transition from a pause to a full easing cycle while the economy remains strong and fiscal space is limited. The market's task will be to weigh the dovish signal against these structural constraints.

Catalysts, Risks, and What to Watch

The February Monetary Policy Council meeting is the primary catalyst. The market has priced in a dovish signal, but the minutes and Governor Glapinski's post-meeting statement will be critical for confirming the path. A clear commitment to resuming cuts next month would validate the current thesis. Any hesitation or a shift to a "wait-and-see" stance would immediately challenge the setup and likely trigger a repricing of the easing timeline.

The key risks to the February cut are twofold. First, a resurgence in wage growth or services inflation could force a delay. While corporate sector wages eased to 6.6% year-on-year in October, they remain a structural inflationary risk. Any sign that this easing is stalling or reversing would directly undermine the central bank's confidence in a sustainable disinflation. Second, a stronger-than-expected growth rebound, particularly driven by a surprise in private consumption or investment, would complicate the policy trade-off. The economy is projected to grow at 3.5% in 2026, and an unexpected acceleration would increase the risk of overheating and reigniting inflationary pressures.

For actionable market intelligence, monitor two specific data points. First, the January inflation data, due in early February, will provide the immediate update on the disinflation trend. A reading that confirms the December slowdown would solidify the case for a cut. Second, watch for any upcoming fiscal measures. The government's deficit is forecast to remain elevated, at 6.3% of GDP in 2026, and any expansionary spending or tax cuts could impact the inflation outlook and government debt dynamics, adding another layer of complexity for the NBP.