Polish Interest Rate Cut Came at Right Time, C.Bank Governor Says

The National Bank of Poland (NBP) marked a pivotal shift in monetary policy in May 2025 with a 50 basis point (bps) rate cut, lowering its policy rate to 5.25%—the first easing since October 2023. Governor Adam Glapiński, long known for his hawkish stance, declared the timing of the reduction "appropriate," signaling a strategic pivot to align with evolving economic conditions. This decision, driven by cooling inflation and weakening growth, sets the stage for further cuts amid a cautious recalibration of Poland’s monetary strategy.

The Case for Easing: Inflation, Wages, and Growth

The NBP’s May decision hinged on three critical factors:
1. Declining Inflation: Annual inflation fell to 3.2% in April 2025, well below the NBP’s 2.5% target range, with projections now expecting it to return to target by early 2026—nine months earlier than previously anticipated.
2. Slowing Wage Growth: Real wage increases moderated to 1.8% year-on-year, easing pressures on consumer prices.
3. Weaker Economic Activity: GDP growth slowed to 2.1% in 2024, with risks of a sharper downturn prompting calls for stimulus.

These trends, coupled with subdued inflation expectations, created a "sweet spot" for rate cuts. Analysts noted that the real ex ante interest rate—adjusted for future inflation—had surged to its highest level since 2015, providing ample room for easing without spurring borrowing costs excessively.

Governor Glapiński’s Dovish Turn

The May cut underscored a notable shift by Glapiński, who had previously prioritized inflation control over growth concerns. His April 2025 pivot—acknowledging the improved inflation outlook—prevented a potential dissent among NBP’s Monetary Council (MPC) members, many of whom had grown increasingly dovish.

In his post-meeting press conference, Glapiński emphasized the data-dependent nature of future policy, stating: "We must balance easing with vigilance to avoid reigniting price pressures." This stance reflects internal NBP dynamics, where the council’s consensus now leans toward gradual cuts rather than prolonged hawkishness.

The Path Ahead: Gradual, but Measured

The NBP projects 75 bps in further cuts by year-end 2025, bringing the policy rate to 4.5%, followed by an additional 75 bps reduction by end-2026 to 3.75%. However, the roadmap remains tentative:
- June 2025: A likely pause to assess incoming inflation data.
- July 2025 onward: Smaller 25 bps increments, contingent on economic stability.

Implications for Investors

The rate cuts could revive Polish equities and corporate bonds, particularly in sectors like construction and consumer discretionary, which benefit from lower borrowing costs. However, the zloty (PLN) faces pressure as easing diverges from the European Central Bank’s tighter stance. Investors should monitor:
- PLN/EUR exchange rate stability (a weaker zloty could boost exports but heighten import costs).
- Inflation surprises: A rebound above 3.5% could force the NBP to slow its easing.

Conclusion: A Delicate Balancing Act

The NBP’s May cut was justified by its data-driven rationale, with inflationary risks now outweighed by growth concerns. The projected rate reductions to 3.75% by 2026 reflect a cautious, two-year easing cycle aimed at supporting economic activity without compromising price stability.

For investors, the key takeaway is this: Poland’s monetary policy is transitioning from defense to offense, but success hinges on whether inflation remains subdued. With the real interest rate at a 15-year high and the NBP’s forward guidance emphasizing flexibility, the path forward is clear—yet fraught with the usual economic uncertainties.

As Glapiński’s pivot demonstrates, even the most steadfast central bankers must adapt when the data demands it. The coming quarters will test whether this shift proves timely or too timid.