The MPC is in a good place with rates, and inflation projections are slightly higher
As expected, the Monetary Policy Council at the July meeting decided to keep the NBP interest rates unchanged, leaving the main reference rate at 3.75%. Although preliminary GUS data indicated a drop in June CPI inflation to 2.5% year‑over‑year, mainly driven by lower annual price dynamics of fuels and food, the new inflation projection casts a slightly different light on medium‑term prospects for the Polish economy.
According to the July projection from the NECMOD model, inflation path forecasts were revised upward. This was obvious to market participants, as the previous projection was made before the latest energy crisis related to the Middle East situation. The annual price dynamics in 2026 with a 50% probability will be in the range 2.4‑3.3%, indicating a clear increase compared to the March projection, which assumed a range of 1.6‑2.9%. It is worth noting, however, that the new projection still shows that inflation remains within the target range. Higher ranges are also forecast for 2027 (1.5‑4.0%) and 2028 (0.8‑3.9%).
It is also worth emphasizing that the MPC notes slightly weaker growth prospects for the current year, lowering the GDP forecast for 2026 to 3.0‑4.4% (from 3.1‑4.7% in March). Inflation still in target and slightly weaker prospects for the economy mean that the prospects for hikes are rather modest, but it is also too early to talk about any return to considering cuts, especially as we observe another escalation of the Middle East situation.
The Fed is taking off the gloves. U.S. interest rates and energy risk
A completely different dynamic prevails across the ocean, where the June FOMC minutes confirmed a hawkish stance in the United States. All voting members of the FOMC voted to keep rates, which is a change compared to recent decisions where some did not want to adopt a statement. It is worth noting that the statement removed language suggesting easing monetary policy, and almost all voting members of the central bank declared readiness to tighten policy again (i.e., raise rates) if higher inflation persists. The shortened communication now directly indicates a priority to restore price stability.
Fed members view current price pressure as extremely persistent and point to entirely new pro‑inflationary factors. Most participants in the meeting see the risk of a scenario in which inflation remains high due to the Middle East conflict, new tariffs, and also the gigantic demand for electricity, data centers, and chips linked to the development of artificial intelligence.
Market reaction: EURUSD tests new levels
Despite the hawkish tone of the published minutes, EURUSD continued the earlier bounce that occurred, even amid the huge uncertainty related to the Middle East situation. Although EURUSD bounced and is now around 1.1430, from the perspective of the last few weeks the EURUSD rate remains in a downtrend. To a large extent, the future of the current pair will depend on monetary policy, both in Europe and across the ocean. Currently the market prices a full hike in the U.S. and euro zone in October.
Current currency rates
Just before 10:00, we pay 3.7636 PLN for the dollar, 4.3034 PLN for the euro, 4.6653 PLN for the franc, and 5.0488 PLN for the pound.
