Interest rates down already in September? A weaker zloty on the horizon
The central bank governor presented the possibility of cutting rates by 25 basis points already in September, assuming that external and internal conditions remain stable. This move is, however, not certain, given the likely acceleration of CPI inflation to about 3% by the end of the year.
Nevertheless, lower interest rates (and a weaker zloty) currently appear to be a plausible scenario.
The statement released immediately after the MPC decision was kept in a neutral tone. Council members again emphasized that further monetary policy decisions in Poland will depend on incoming information about inflation prospects and economic activity in the country.
Glapiński surprised with a plan for rate cuts
They also indicated that key factors shaping these prospects will be changes in commodity prices and global inflation, as well as fiscal policy stance and wage dynamics. In the July meeting, the Council also reviewed new economic projections prepared by NBP experts. Compared to the March projection, the changes in the expected CPI inflation path and GDP growth are, in our view, not significant.
According to the current projection, inflation is expected to average 2.9% this year (vs. 2.3% in the March projection), 2.8% next year (vs. 2.4%) and 2.4% in 2028 (vs. 2.3%).
Conversely, GDP growth is projected at 3.7% this year (vs. 3.9% in the March projection), 2.8% next year (vs. 2.9%) and 3.0% in 2028 (vs. 2.9%). In this context, the press conference by NBP President Adam Glapiński proved to be a big surprise. The central bank chief described himself as a dove, while he says the Council is only cautiously dovish.
Importantly, Adam Glapiński said that assuming external and internal conditions remain stable, he could submit a request to cut rates by 25 basis points at the next MPC meeting in early September. However, we believe that securing the necessary majority for such a decision will not be easy.
Although the new projection shows inflation will not exceed the upper CPI target band of 3.5%, it will still accelerate to about 3% by the end of the year from 2.5% in June. This could prevent a rate cut in September. At the same time, given the president’s comments, such a scenario is not implausible. If rates were cut, we would view the move as an adjustment rather than necessarily a prelude to further easing this year.
In such a scenario, we would also expect further weakening of the zloty and an increase in the EURPLN rate above 4.35 due to the narrowing gap between nominal and real rates between Poland and the euro zone.
