“The MPC has plenty of time to pull the trigger many times.” Important forecasts for borrowers
On Wednesday, the Monetary Policy Council decided to reduce interest rates by 0.25 percentage points, which means that the NBP reference rate is now 4.25%, the lowest since spring 2022. This decision was burdened with considerable uncertainty, but it is not a surprise. The question is what's next, because the Monetary Policy Council – due to a significant drop in inflation – has already reduced rates by a total of 1.50 percentage points since May.
We learned a lot of new information about the future: the National Bank of Poland published the November projection prepared by its economists. It shows that in the forecast horizon, i.e. until 2027, inflation will be the central bank's target.
Another rate cut for Santa Claus?
On Thursday afternoon, Adam Glapiński, president of the NBP and chairman of the Monetary Policy Council, spoke at the traditional conference after the Council meeting. He assessed that the current level of interest rates reflects the economic situation very well and repeated that the Monetary Policy Council's decisions have been and will be made from meeting to meeting. The Council remains cautious and does not announce the interest rate path, and its goal will now be to perpetuate low inflation. The president pointed out that if inflation runs in line with the projection, then the natural next move will be a slight reduction, which may occur both in the next month and in six months.
When asked about the possibility of changing rates in December (in calm times, rates were rarely changed in the last month of the year), the president said that it was a good month “both to make and not to make decisions about a cut” (the meeting was scheduled for December 2-3). He said that the outlook for inflation has improved, the latest projection shows that next year inflation will be lower than previously expected, and over the entire projection horizon, inflation should remain at a level consistent with the NBP target.
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own study based on data from the National Bank of Poland and the Warsaw Stock Exchange
The president said that in an “ideal” scenario, when inflation remains fully consistent with the 2.5% inflation target. , the main interest rate should be 3.5–4.0 percent. , and his personal opinion is that the target rate of 4.0 percent. would be appropriate, not too high for the Polish economy.
Economists forecast when and by how much the Monetary Policy Council will cut rates
“Our base scenario assumes that rates will remain unchanged in December, but a reduction, especially in the event of another positive surprise with inflation data, cannot be ruled out,” PKO BP economists said.
“We maintain the view that the Monetary Policy Council will probably reduce the main interest rates once again, to 4.0 percent, and the next move will most likely take place in the first quarter of 2026. For now, we assume that it may be Januarywhen the Council will know the decision on energy tariffs for 2026. However, delaying the next cut until March seems almost as likely” – said Santander experts.
Bank Millennium experts spoke in a similar tone: in their opinion, it is more likely that the MPC will refrain from making another move until the first quarter of 2026. “However, another cut in December this year cannot be completely ruled out. This may be determined by the inflation reading for November. Its drop to 2.5% y/y may be used by part of the MPC to further adjust rates,” they said.
ING Bank Śląski experts are less convinced. In their opinion, the conference did not provide clear signals as to the Council's next steps. On the one hand – as they argue – the fact that President Glapiński emphasized the scale of the significant easing of monetary policy so far (by a total of 150 bp), the dynamism of the Polish economy and the need to keep inflation at a low level, mean that there is less willingness to further reduce rates in the near future. Similarly, they read the claim that the level of rates is appropriate for the situation. The president also said that the NBP is monitoring the impact of current decisions on the economy, which takes time.
See also: NBP presents new forecasts. There has been no such situation with inflation for years
However, on the other hand, in November inflation may be at or even below the NBP target, which may prompt the Council to cut rates again, especially since Adam Glapiński did not rule out the possibility of changes in interest rates in December. “The president also mentioned that the target rate is between 3.5-4 percent. Concerns about the risks associated with an increase in inflation have become noticeably weaker, and the issue of an increased rate of wage growth is no longer a major concern for the NBP due to expectations of further deceleration in wage growth,” added ING Bank Śląski economists.
Their base case scenario assumes that the next interest rate cut will take place only in March, and by the middle of next year the reference rate will be reduced to 3.50%, so we would face three more cuts. “The time windows for rate changes are likely to be the first half of 2026, because in the following quarters the good economic situation will cover other sectors of the economy and the credit cycle will intensify. With the Council's reaction function unclear, anything can happen in December. Yesterday's speech indicates that the probability of a NBP rate cut and no change are similar. Favorable reading of current inflation, which will be known at the end of November, and inflation falling to the target of 2.5%. or below may prompt the Council to make another one adjustments“- they wrote.
“We still believe that the cycle of interest rate cuts will end at the reference rate of 3.75%, although this level may be reached sooner than previously expected – in March, not in mid-2026. If this scenario materializes, it would probably increase the central bank's inflation forecast of 2.6% in 2027 by an additional 0.2 percentage points, moving the CPI away from the 2.5% target. New “The macroeconomic projection with lower interest rates is to be published in March and for this reason we believe that the March meeting would mean the end of the current cycle of easing monetary policy,” Citi Handlowy experts said.
Will the interest rate drop even to around 3 percent?
Bank Pekao economists seem dovish. In their opinion, the MPC's attention is no longer focused on fighting inflation, but on finding the right target rate. That is, one that stabilizes the balance of payments and the value of the zloty and stimulates economic growth, but not above the potential.
Referring to the 4% mentioned by the president. as a neutral rate, wrote that in their opinion, the space for further rate cuts is greater (by at least 3.5%), but Council members may at some point want to pause and wait for data before using it. “Until now, we thought that such a pause would take place at the turn of the year, but yesterday A. Glapiński devoted a lot of time to convincing the markets that December is not a taboo when it comes to changing interest rates. — they wrote in a comment.
See also: Optimistic NBP forecasts for the labor market. Unemployment down
They maintained their opinion that the space for interest rate cuts is large, larger than the Monetary Policy Council currently perceives. “We believe that the incoming macro data will gradually confirm this. Already in November, inflation may be in the middle of the NBP target, and although it will probably move slightly away from it at the turn of the year, we expect that the Council will decide on three more rate cuts (by a total of 75 bp) in the coming months. The first one may be in December, although this is not our base scenario yet (we will wait for more comments from the Monetary Policy Council),” concluded Bank Pekao economists.
Recently, mBank economists have made a significant change in their forecasts, as they previously assumed that the cutting cycle would end at 4%.c. They wrote this week that it is difficult to find a reason for monetary authorities to keep interest rates the same with inflation on target. “Especially since the bogeyman (never quantified, but present in the verbal layer for some time) in the form of ETS2 will only appear in 2028 (and not 2027), which definitely goes beyond the horizon of monetary policy. We see room for a rate cut towards 3%. next year, and the window for reductions will remain open. The MPC will have 12 meetings to use it. This is, in our opinion, enough time to pull the trigger multiple times.” – wrote mBank analysts.
