In a significant policy shift, the Monetary Policy Council (RPP) of Poland announced on May 7, 2025, that it would lower interest rates by 0.50 percentage points, bringing the reference rate down to 5.25 percent. This marks the first cut in interest rates since October 2023, when the Council had previously reduced the rate by a total of 100 basis points, stabilizing it at 5.75 percent for over 19 months.
The RPP described the recent decision as an "adjustment of the level of NBP interest rates," indicating that the Council is not yet prepared to signal a broader cycle of rate cuts. This adjustment is based on recent economic data that suggest a decline in both current and forecasted inflation, alongside slower wage growth and weaker economic activity. The Council emphasized that future decisions regarding interest rates will depend on incoming information about inflation prospects and overall economic activity.
In its statement, the RPP highlighted the decrease in inflation both in Poland and globally, noting that the annual Consumer Price Index (CPI) inflation rate fell to 4.2 percent in April 2025, down from 4.9 percent in March. This decline is attributed primarily to the waning effects of a VAT increase from the previous year, lower fuel prices due to a decrease in crude oil costs, and a weakening dollar.
"Given the incoming information, including lower current and projected inflation, decreasing wage dynamics, and weaker economic data, the adjustment of the NBP interest rates has become justified," the RPP stated. The Council also pointed out that while unemployment remains low and employment levels are high, the enterprise sector saw a decrease in employment in March 2025 compared to the previous year.
Annual GDP growth for the first quarter of 2025 was reported at 1.2 percent, mirroring the previous quarter's performance. However, available data suggests that this growth was slightly below expectations and lower than in the fourth quarter of 2024. In contrast, the United States experienced a decrease in economic activity during the same period, resulting in a drop in annual GDP growth to 2.0 percent.
The RPP's current assessment indicates that economic activity in Poland may have slowed, with negative annual dynamics in retail sales and construction output recorded in March. Despite high wage growth levels, enterprise sector data suggest a decline in wage dynamics, which may further influence the Council's future decisions.
Analysts from ING Bank Śląski noted that the key takeaway from the RPP's communication is the lack of explicit forward guidance regarding future rate cuts, suggesting a cautious approach toward monetary policy. They expect that the RPP will continue to lower rates towards a neutral level, predicting two more cuts in 2025: one in the summer when inflation is anticipated to fall below 3.5 percent year-on-year, and another in the fall, contingent on stable energy prices for households.
PKO BP economists echoed this sentiment, indicating that the RPP's use of the term "adjustment" implies a reluctance to commit to a series of further cuts at this stage. They forecast that the reference rate will reach 4.75 percent by the end of 2025, with an additional one percentage point reduction expected next year, ultimately targeting a rate of 3.75 percent.
In the euro area and the United States, inflation rates are also trending down towards central bank targets, which the RPP noted as a positive sign for global economic stability. However, the Council remains cautious, highlighting uncertainties related to demand pressures, labor market conditions, energy prices, fiscal policy, and global inflation trends, especially in light of changing trade policies among major economies.
RPP member Henryk Wnorowski had previously indicated that economic data were aligning with expectations for an interest rate cut, even suggesting that a reduction of 50 basis points could be on the table. He emphasized that it was unlikely for rates to drop below 4 percent in 2025, predicting rates would stabilize around that level by the year's end.
As the RPP navigates these economic challenges, it has committed to taking necessary actions to ensure macroeconomic and financial stability, aiming for a sustainable return of inflation to the central bank's target in the medium term. The Council reiterated its readiness to intervene in currency markets if necessary.
This latest decision has sparked discussions among financial analysts and economists, who are closely monitoring the implications of the RPP's adjustments on the Polish economy and the potential for further rate cuts. As inflation continues to evolve and economic conditions fluctuate, the RPP's careful balancing act will be crucial in shaping the future of Poland's monetary policy.
