PL: An unexpected 25bp cut delivered

The Monetary Policy Council of the National Bank of Poland has decided to reduce the key interest rate by 25 basis points, contrary to both our expectations and the market consensus. Around 75% of the analysts, including us, anticipated the rate would remain unchanged at 5.25%. Despite the increasingly hawkish tone adopted by MPC members in recent weeks, the latest macroeconomic projections appear to have prompted the earlier-than-expected rate cut. The zloty has depreciated against the euro from 4.250 to 4.265 since the start of the day.

The updated forecasts released alongside todays press statement reflect an expected downward revision in the predicted inflation path. According to NBP analysts, there is a 50% probability that annual price growth will fall within the range of 3.54.4% in 2025 (previously 4.15.7% in the March 2025 projection), 1.74.5% in 2026 (vs. 2.04.8%), and 0.93.8% in 2027. These revised projections appear sufficient to justify the rate cut, despite earlier commentary from MPC members suggesting a preference to delay easing until at least September. We have recently highlighted the escalation of tensions in the Middle East and elevated oil prices as reasons to adopt a more cautious stance. However, the NBPs press release makes no reference to these geopolitical risks, indicating that the Council does not currently perceive them as a material threat to the inflation outlooklikely due to the relative stability observed in recent weeks.

To complete the picture, we will mention the adjusted growth forecasts as well. For 2025, the 50% probability interval for GDP growth has narrowed slightly to 2.94.3% (from 2.94.6% in March), while the range for 2026 has widened to 2.14.1% (vs. 1.94.0%). The projection for 2027 now stands at 1.33.7%. In our assessment, the decision signals the MPCs confidence that headline inflation will approach 2.5% in July and remain within the tolerance band over the foreseeable horizon. We share this view and anticipate a further rate cut in September. However, it remains uncertain whether the next move will be a 25 or 50 basis point reduction.