Introduction to Poland’s Inflation Situation
Poland’s inflation rate for July was higher than what analysts had anticipated, standing at 3.1% year-on-year, compared to the average forecast of 2.85%. This rate, although higher than expected, has brought inflation back within the target range set by the National Bank of Poland (NBP), which is between 1.5% and 3.5%. The month-on-month inflation was 0.3%, surpassing the estimated 0.15%.
Recent Inflation Trends
In the preceding month, June, the inflation rate was 4.1%, exceeding the NBP’s target. However, the recent data suggests a downward trend in inflation, which is expected to continue in the coming months. The main driver behind the higher-than-expected inflation in July was fuel prices. Analysts predict that as fuel prices stabilize, inflation will slow down further.
Impact on Monetary Policy
The data and trends observed so far have significant implications for Poland’s monetary policy. The NBP had unexpectedly cut its main interest rate to 5% this month, anticipating a clear decline in inflation. Given the current inflation rate and its expected downward trajectory, there are heightened expectations for another interest rate cut in September. This would be in line with the central bank’s efforts to support economic growth while keeping inflation under control.
Future Projections and Challenges
According to Monika Kurtek, chief economist at Bank Pocztowy, "Although July inflation was slightly higher than forecast, there is no doubt that it will slow even further in the coming months, falling below 3.0%." She also suggested that the Monetary Policy Council (MPC) would likely reduce interest rates by another 25 basis points in September, considering the continued deviation from the NBP target and recent macroeconomic data.
Monetary Policy Decisions Ahead
NBP Governor Adam Glapinski has stated that the July cut was not the beginning of a policy-easing cycle but hasn’t ruled out another reduction in September. With no MPC decision-making meeting scheduled for August, all eyes are on the September meeting for potential interest rate adjustments. The path forward for monetary policy is not without challenges, including uncertainty over fiscal policy, the 2026 budget, and energy prices. A bill to freeze energy prices in the fourth quarter of this year has been approved by parliament but awaits the president’s signature, introducing another variable into the economic equation.
Conclusion
The downward trend in Poland’s inflation rate suggests that the Monetary Policy Council will continue to cut interest rates gradually. By the end of this year, another 25 basis point cut is likely, potentially bringing the reference rate to 4.50% by the end of 2025. As Poland navigates its economic challenges, the interplay between inflation control, interest rates, and broader economic policy will be critical in determining the country’s financial trajectory. The forecasts and expectations for further interest rate cuts underscore the Central Bank’s proactive approach to managing inflation and supporting economic stability.
