Polish C.Banker Kotecki says that he would not rule out another interest rate cut this year - Puls Biznesu daily

Polish C.Banker Kotecki says that he would not rule out another interest rate cut this year - Puls Biznesu daily

Polish Central Banker Kotecki has indicated that he would not rule out another interest rate cut this year, as the country's government seeks to extend a cap on power prices. The central bank governor's comments come amid growing market expectations for a potential rate reduction following the government's plan to prolong the price cap for the fourth quarter of 2025.

Poland's Energy Minister, Milosz Motyka, has stated that the cabinet is likely to approve a bill to extend the cap on power prices for the fourth quarter next week. The legislation will then be fast-tracked through parliament to come into force later this month. This move aims to provide further stability to households and businesses, which have been grappling with volatile energy prices.

The market's expectations for interest rate cuts within the next three months have increased slightly following Motyka's statement. Piotr Bielski, an economist at Santander Bank Polska, noted that while a rate cut in October is not ruled out, the central bank is likely to wait for its next inflation projection, due in November, before making a decision.

Poland's electricity price cap for households expires in October, and the central bank has identified this as a potential inflation risk factor. The government has prepared a new bill that includes a wage-dependent subsidy to household heating bills, which is expected to pass parliament this month. According to Motyka, the government does not anticipate further energy price freezes, expecting energy prices to fall below 500 zlotys per MWh.

The fiscal cost of these subsidies is significant, with the government allocating 1.3 billion zloty to cover the price gap in 2025. This has contributed to a projected budget deficit of 5.9% of GDP in 2024 and an expected rise in public debt beyond 60% of GDP by 2026. While this fiscal expansion provides short-term stimulus, it raises concerns about long-term sustainability, particularly as energy companies warn of mounting losses from the price cap.

The NBP's recent dovish pivot—cutting rates by 100 basis points since late 2023—reflects its attempt to offset inflationary pressures while supporting growth. However, the central bank's ability to ease policy is constrained by the fiscal costs of maintaining price caps. The interplay between Poland's fiscal energy subsidies and the NBP's inflation targets underscores a broader tension in macroeconomic policy.

For investors, Poland's energy price caps and monetary policy interdependence present both opportunities and risks. The short-term stability provided by the price freeze supports consumer-driven growth, making sectors like retail and services attractive. However, the looming inflationary risks and fiscal pressures necessitate caution in energy and infrastructure investments, where policy shifts could disrupt returns.

The NBP's rate trajectory will be pivotal. If the central bank resumes rate cuts in October 2025, as suggested by forward guidance, it could boost equity markets and corporate borrowing. Conversely, a premature tightening in response to inflation spikes could dampen growth. Investors should closely monitor parliamentary debates on the standalone price cap bill and the NBP’s inflation forecasts for directional cues.

Poland’s electricity price caps have been a double-edged sword: stabilizing household budgets in the short term while creating inflationary headwinds for the NBP. The government’s fiscal interventions have bought time for the economy to adjust, but the long-term risks of subsidy dependency and fiscal expansion cannot be ignored. As the country navigates this delicate balance, investors must weigh the immediate benefits of price controls against the potential for policy reversals and monetary tightening.

References:
[1] https://www.ainvest.com/news/kotecki-poland-mull-oct-rate-cut-power-prices-capped-2509/
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L5N3UV13L:0-polish-central-banker-janczyk-reasonable-to-consider-rate-cut-in-near-future/