Polish Policymakers Proceed Cautiously: A Delicate Dance Between Rate Cuts and Economic Stability

The National Bank of Poland (NBP)’s May 2025 decision to cut its reference rate by 50 basis points to 5.25% marked a pivotal shift in monetary policy, ending a prolonged tightening cycle that began in 2022. Yet, the central bank’s emphasis on “data dependency” and smaller, incremental adjustments signals a deliberate move away from aggressive moves. For investors, this cautious pivot raises critical questions: How sustainable is the disinflation trend? What risks could disrupt the emerging easing cycle? And what does this mean for Poland’s economy—and its assets—over the next 12–18 months?

The Case for Caution: Inflation, Wages, and Growth

The NBP’s decision was anchored in three key trends. First, headline inflation has cooled to 4.2% year-on-year (YoY) in April 2025, down sharply from 4.9% in March and 9.6% a year earlier. The fading impact of 2024’s food price surges—particularly the end of VAT exemptions on staples—and falling global oil prices have been critical. Second, wage growth has slowed to 7.7% YoY in March, marking a dramatic deceleration from the 16% peak in mid-2022. Third, economic activity has softened, with Q1 2025 GDP growth dipping below the prior quarter’s pace, alongside weaker retail sales and industrial production.

These developments have created room for easing, but the NBP is mindful of risks. A prolonged pause in global oil price declines, fiscal stimulus from Poland’s new government, or renewed labor market tensions could reignite inflation. Governor Adam Glapiński’s emphasis on “dynamic adjustment” in May—coupled with his warning against interpreting the cut as the start of a full easing cycle—underscores the central bank’s reluctance to commit to a pre-set path.

The Crossroads: June or July?

Analysts are split on the timing of the next cut. ING BSK’s Adam Antoniak argues for a pause until July, pending Q2 inflation and GDP data. Meanwhile, Pekao’s Kamil Łuczkowski sees a June cut as likely, citing Glapiński’s earlier rhetoric and the need to preemptively support growth. The NBP’s June meeting will hinge on whether inflation trends toward 3.5% YoY by Q3, as projected, and whether GDP avoids a sharper slowdown.

The Path Ahead: Gradual Easing or a Pause?

Longer-term projections suggest a gradualist approach. PKO BP forecasts two more cuts in 2025, trimming the reference rate to 4.75% by year-end, with further reductions to 3.75% by end-2026. ING, however, anticipates smaller steps, with a 25bp cut in July and another in late 2025, resulting in 4.5% by year-end. Both scenarios assume the NBP prioritizes maintaining credibility by avoiding over-easing too soon.

Implications for Investors

For equity markets, a sustained easing cycle could support sectors like banking and real estate, which benefit from lower borrowing costs. However, the NBP’s caution may limit gains unless growth stabilizes. Bond investors, meanwhile, face a dilemma: 10-year Polish government bond yields (PL10YR) have fallen to 4.1%, pricing in roughly two 25bp cuts by year-end. Yet, a June pause could trigger a short-term rally in yields if markets had priced in a cut.

Conclusion: A Balancing Act with Room for Optimism

The NBP’s May decision marks a critical first step in what is likely to be a prolonged, incremental easing cycle. With inflation on track to hit its 2.5% target by late 2025 and wage growth now subdued, the central bank has bought itself time to assess risks. However, the path forward hinges on three pillars: sustained disinflation, avoidance of fiscal over-stimulus, and resilience in private consumption.

If these conditions hold, the NBP could cut rates by 125–150 basis points in 2025, aligning with PKO BP’s projections. Investors should monitor Q2 GDP data (due in late July) and July’s inflation print closely. For now, the cautious tone suggests a preference for stability over acceleration—a prudent stance given Poland’s history of volatile inflation. While the era of ultra-high rates is ending, the era of “easy” monetary policy remains a ways off.

In this environment, equity investors might favor defensive sectors with stable cash flows, while bond markets could see volatility tied to data releases. The NBP’s gradualism isn’t just about rates—it’s about ensuring Poland’s hard-won disinflation isn’t derailed by premature exuberance. For now, the dance continues, and investors would be wise to keep a steady step.