PL: Mixed signals from the governor point towards more cuts
Following yesterdays press conference by NBP Governor Adam Glapiski, it has become increasingly evident that, under current conditions, a rate cut in September is the most likely course of action. While the Governors remarks were somewhat ambiguous, the overall message suggests to us that the Monetary Policy Council is now more inclined toward easing, potentially at a greater magnitude than previously anticipated.
On one hand, Governor Glapiski adopted a cautious tone, emphasizing that a 25 basis point cut would not signify the beginning of a formal easing cycle. He reiterated the Councils intention to avoid premature monetary loosening that could necessitate future reversals. He also highlighted several pro-inflationary risks, including expansionary fiscal policy, global economic uncertainty, domestic energy prices, and the EUs ETS2 regulation, which could add up to 2 percentage points to Polands inflation rate by 2027.
On the other hand, the Governor also conveyed a more dovish stance, stating that if inflation trends toward the 2.5% target as projected - we will boldly reduce interest rates to very low levels to support economic growth. He referenced a terminal rate of 3%, which is below our current forecast of 3.5% by the end of 2026.
In light of these comments, we now anticipate a more assertive pace of rate reductions throughout the remainder of the year. Previously, we projected the policy rate to stand at 4.75% by the end of Q4; we now revise this forecast to 4.5%, with risks tilted to the downside. Our baseline scenario assumes a 25 basis point cut in September with an additional 25 basis point reduction in Q4, or alternatively a 50 basis point cut in September, followed by a pause. For 2026, we maintain our terminal rate forecast at 3.5%, though we now expect it to be reached one quarter earlier than previously projected. However, as communication from the NBP has been inconsistent in the past few months, we do not exclude other major changes in their forward guidance.