Economic news

• RATES: The MPC unexpectedly cut Poland’s interest rates by 25 bps. This move surprised markets, as previous signals from committee members indicated a more cautious stance, citing concerns over expansive fiscal policy and volatile energy prices. However, the new macroeconomic projection of NBP sharply revised its inflation forecast downward what might have prompted the MPC to hasten the rate cuts. We now expect another rate cut in September, followed by one more later in the year (either October or November), bringing the total 2025 easing to 125 bp. Such scenario was suggested by recent comments by MPC members H. Wnorowski, I. Dąbrowski and L. Kotecki. A more detailed discussion of the interest rate outlook is included later in this publication.
• INFLATION: June CPI in Poland surprised slightly on the upside, with 4.1% yoy reading as compared to 4.0% consensus and 4.0% yoy reading in May. We estimate the core inflation rate at 3.3-3.4% yoy. We see the uptick in inflation as a one-off rather than a trend reversal. It was driven partly by volatile food prices and recent crude oil fluctuations. We expect price pressures to ease ahead and the inflation rate to fall sharply towards NBP target (2.5% +/ 1pp) from July onwards.
• SENTIMENT: Poland’s manufacturing PMI fell sharply to 44.8 in June (from 47.1 in May), its lowest since October 2023 and well below expectations. The drop reflects accelerated declines in new orders and production, with export orders falling at the fastest pace in years amid weak European demand. However, Poland’s PMI has historically shown low correlation with GDP and is a weak standalone economic indicator, prone to swings and cyclical volatility. These cycles typically last less than a year, and the current pattern suggests residual seasonality despite adjustments. Notably, Poland’s PMI often moves asymmetrically to the Eurozone PMI, which has been slightly improving, while the Global Manufacturing PMI hovers around 50, indicating a sideways global environment. Thus, the drop likely reflects negative sentiment from trade uncertainties and geopolitical instability rather than a local collapse. We recommend awaiting confirmation from hard data before drawing strong conclusions on Poland’s manufacturing outlook.
• DEBT: Poland’s current account deficit was revised downwards from + EUR0.7bn to - EUR1.18bn after Q1 2025. The update implies a lower path for the current account around the turn of 2024 and 2025, with the 12-month rolling balance now at -0.8% of GDP, down from -0.6% previously. The revision reflects softer exports amid subdued European demand and strong domestic consumption, supported by labour market trends and robust credit demand. While the deficit remains manageable, a weaker external position could marginally limit the room for aggressive rate cuts, especially if accompanied by zloty depreciation and ongoing global trade headwinds.

Another dovish turn of the MPC

The July rate cut by the MPC caught many by surprise, including, to some extent, the Council itself. The latest NBP projection presented a much steeper decline in inflation, even while assuming the unfreezing of electricity prices later this year, exceeding the expectations of many Council members.

Against this backdrop, the NBP Governor noted that inflation should align with the target over the medium term, creating space for further easing if needed. However, the central bank is framing these moves as “adjustments” rather than the start of a formal easing cycle. The question now is whether the MPC will continue with another cut in September. The Governor noted that conditions need to remain “favorable” and current trends in the data need to hold. The press conference featured dovish undertones, with suggestions that rates could fall to “very low levels” if inflation stays on target, with 3–3.5% indicated as a potential endpoint. 

The NBP’s updated projection suggests that headline inflation will sustainably return to the target band by Q1 2026, with CPI expected at 3.1% in 2026 and 2.4% in 2027, while core inflation is seen declining more gradually to 3.2% in 2026 and 2.6% in 2027. The projection also points to a gradual increase in the real interest rate, which should encourage households to save rather than consume, aiding disinflation.

The central path of the projection foresees GDP growth at 3.1% in 2026 and 2.5% in 2027, while investment growth is expected to accelerate to 5.9% y/y in 2025-2026 before easing by 1.9% y/y in 2027. The output gap is projected to remain slightly positive in Q2-Q3 2026 before turning negative again, reinforcing disinflationary pressures. The NBP notes that the balance of risks remains broadly symmetrical for both GDP and CPI in the projection horizon, with potential output growth averaging 2.9% y/y in 2025–2027, slightly below the long-term average.

The NBP's new inflation projections (midpoints of 50% intervals)

Source: NBP

That said, the NBP Governor was not entirely dovish during the press conference. He highlighted four key drivers of inflation in his view. Among which, labour market was the only described in clearly positive terms, noting that wage growth is cooling and the April spike was likely a one-off. The other factors were seen as broadly balanced at best (with the unclear trajectory of energy prices and only modest economic momentum), while loose fiscal policy was flagged explicitly as a risk.

The NBP's hypothetical macroeconomic dashboard

Source: Pekao Research

We continue to see a September cut as highly likely but do not view it as the final move for this year. We expect the MPC to lower rates by a further 50 bps this year, taking the total easing in 2025 to 125 bps. In subsequent years, we see scope for a gradual easing path toward a 3.5% endpoint in 2027. The NBP’s openness to lower rates, and the MPC’s cautious approach suggests adjustments will continue but not as an aggressive cycle. September will likely be the next inflection point, provided data trends align with the NBP’s scenario.

Financial market update

The major event of the past week was the unexpected interest rate cut by the MPC. The FI market reacted immediately pricing in two more interest rate cuts over the next 12 months. However, Polish FX market remained calm so far and pushed zloty towards three-month high. With no major domestic data releases scheduled for the coming week, market direction will likely be shaped by global trends. We expect the PLN to stabilize around current levels, supported by expectations of a more accommodative monetary policy stance.

The fixed income market has already priced in a significant amount of additional rate cuts over the next year, leaving limited room for further change. This suggests a stabilization of POLGB yields or even a slight correction. However, this scenario could be disrupted by a potential escalation of global trade tensions after July 9 and a resurgence of global risk aversion.