The war in the Middle East complicates the MPC's plans. Will there be a rate cut on Wednesday?
The impact of the Israeli-American attack on Iran on financial markets is limited for now. It is visible primarily in the increase in oil prices, mainly due to Iran's attempts to block the key Strait of Hormuz, through which tankers transporting raw materials pass. At the same time, capital was directed to safe havens, which resulted in the dollar gaining (the zloty was losing) and American bonds, and declines were visible on the stock markets (although so far moderate).
It is particularly worth watching the crude oil market, a key raw material that has a direct and indirect impact on inflation. WTI oil prices on Monday, i.e. the first day of trading after the attack that started on Saturday, temporarily increased by almost 12%, to almost USD 75. per barrel (in the afternoon, the scale of the discount slowed down and the rate fluctuated around $72). However, prices have already been rising in previous weeks and the current quotations are at their highest level in a year and a half. In addition, there is a correction in the PLN/USD rate (the USD/PLN exchange rate has gone up by almost 10 groszy in three weeks and is currently PLN 3.625 per dollar). The combination of these two factors is pro-inflation.
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Oil is becoming more expensive and the Polish zloty is losing value. These are direct market effects of the war in the Middle East, which may thwart the Monetary Policy Council's plan to reduce interest rates this year. The March MPC meeting was supposed to bring the expected cut, but geopolitical disruptions added to uncertainty. We check whether the vision of more expensive fuel and disrupted supply chains will prevent the Monetary Policy Council from loosening its monetary policy in the face of a new, pro-inflation impulse.
The impact of the Israeli-American attack on Iran on financial markets is limited for now. It is visible primarily in the increase in oil prices, mainly due to Iran's attempts to block the key Strait of Hormuz, through which tankers transporting raw materials pass. At the same time, capital was directed to safe havens, which resulted in the dollar gaining (the zloty was losing) and American bonds, and declines were visible on the stock markets (although so far moderate).
It is particularly worth watching the crude oil market, a key raw material that has a direct and indirect impact on inflation. WTI oil prices on Monday, i.e. the first day of trading after the attack that started on Saturday, temporarily increased by almost 12%, to almost USD 75. per barrel (in the afternoon, the scale of the discount slowed down and the rate fluctuated around $72). However, prices have already been rising in previous weeks and the current quotations are at their highest level in a year and a half. In addition, there is a correction in the PLN/USD rate (the USD/PLN exchange rate has gone up by almost 10 groszy in three weeks and is currently PLN 3.625 per dollar). The combination of these two factors is pro-inflation.
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Now the Monetary Policy Council will get acquainted with the latest macroeconomic projection (mainly including inflation and GDP forecasts prepared by NBP economists), extended for the first time to 2028. However, it will most likely not take into account the effects of the latest conflict in the Middle East.
See also: Oil even at $150. per barrel? Analysts allow for such a scenario
“The March NBP projection should confirm that the decline in inflation observed in recent quarters is permanent and broad-based,” said ING Bank Śląski economists. According to Credit Agricole economists, due to the lower starting point, the path of this year's inflation will be revised downwards. In their opinion, the forecast of the GDP growth rate will most likely not change significantly.
Will the Monetary Policy Council lower interest rates in March?
— The consensus of economists' forecasts unanimously indicates that the next meeting will bring a cut of 0.25 percentage points. Market valuations, which already include an attack on Iran, assign an 85% probability to such a reduction. – says Marta Petka-Zagajewska, director of the Macroeconomic Analysis Office at PKO BP.
He adds that these forecasts reflect the entire list of arguments in favor of a cut that the Monetary Policy Council will have at its disposal at the meeting. In her opinion, the key factor will be the new inflation projection, which – as President Adam Glapiński has already revealed – will show stable and low inflation, within the inflation target (2.5% with a deviation range of +/- 1 percentage point).
See also: This is the key weapon in attacks on Iran. The US has less and less of it
— Current inflation trends are also favorable – in January, preliminary data showed a further decline in inflation to 2.2%. year to year, which may even turn out to be even deeper after their revision based on updated inflation weights. The importance of factors that the Council indicated as potential threats to inflation is decreasing – here, the labor market and increased wage growth have long been at the top of the list of inflationary threats. Wage growth slowed down to 6.1% in January. year to year confirmed that the surprisingly high data about them in December were only temporary, and the temperature of the labor market is gradually decreasing. Data on economic activity in January also showed that the economy is far from overheating, says a PKO BP economist.
Thanks to a significant drop in inflation, the Monetary Policy Council reduced interest rates by 1.75 percentage points in 2025, to 4%. in the reference case.
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Own study based on Central Statistical Office data
The PKO BP expert points out that the long list of arguments “for” the reduction is accompanied by only one argument against. — These are events in Iran whose economic repercussions are still unclear. Since this is undoubtedly a risk factor with a pro-inflation impact, through the oil and gas price channel and the weakening of the Polish zloty, the Council – if it actually lowers interest rates – it will most likely be embellished with hawkish rhetoric, emphasizing the dependence of future decisions on the development of the global situation and readiness to take any actions, depending on the inflation prospects – says Marta Petka-Zagajewska.
Despite the increase in oil and dollar prices, prices are still moderate
Sebastian Roy, an economist at Bank Pekao, speaks in a similar tone, pointing to the factors prompting the Monetary Policy Council to cut rates on Wednesday. He emphasizes that the Council will base its decision primarily on the condition of the domestic economy, where there is clear room for rate cuts.
— Military activities in the Middle East may raise concerns of the Monetary Policy Council about an increase in inflationary pressure through the energy price channel. Since last week, crude oil prices have increased by approximately 10%. However, it should be noted that the historical resistance level is $80. per barrel has not been exceeded, and price stability in Poland is supported by the still strong zloty: the USD/PLN exchange rate is currently close to the lows of 2025. This means that the scale of the potential impact of the Iran conflict on inflation in Poland is limited — says Sebastian Roy.
Emphasizes that the increase in energy prices on global markets is a factor the so-called a negative supply shock that, in principle, does not require a response from monetary policy. Typically, central banks facing an inflationary supply shock, as in the case of a reduction in oil supplies to global markets, do not react due to the one-off nature of such price adjustments, as well as the potential reduction in consumer purchasing power after an increase in energy prices.
Or maybe a third consecutive pause?
mBank economists, although they also expect a rate cut on Wednesday, wrote that the Monetary Policy Council will probably treat the situation in the Middle East as a risk factor slowing down the pace of further cuts in the second quarter. However, they noted that there is a (not small) possibility of an emotional reaction in line with the simple heuristics offered many times by President Glapiński: “when there is a war, rates are not lowered.”
An alternative in such a case would be to wait for the cessation of hostilities, perhaps until April (Donald Trump said that the war was to last four weeks). “Support for such a scenario is the general view in the Monetary Policy Council that currently this is only the case fine tuning and for this reason there is no need to rush. The situation is dynamic – the decision may depend on how oil prices behave on voting day. “We continue to believe that the chance of a cut (plus a cautious message regarding future moves) is greater than of no cut.” — wrote mBank analysts, referring to the March meeting.
Such higher oil prices and a weaker zloty would translate into inflation
According to calculations by mBank economists (based on the Oxford Economics model), an increase in oil prices by USD 20. per barrel means an increase in the annual dynamics of CPI inflation by 0.8 percentage points. now and by 1.4 percentage points. at the end of this year (later the effect would expire). An increase of $30. this is 1.2 percentage points, respectively. and 2.1 percentage points raising inflation. However, they noted that the impact on inflation was, in their opinion, significantly overestimated compared to other models (including the National Bank of Poland), so it would actually be smaller. On Monday afternoon, a barrel of WTI crude oil cost approximately USD 72, i.e. USD 10. more than a month ago and $15. more than at the beginning of January.
According to calculations by BNP Paribas Bank analysts, an increase in oil prices by 10%. translates into an increase in fuel prices (gasoline and diesel) by approximately 4%. (at a stable USD/PLN exchange rate). In turn, a permanent increase in fuel prices by 10%. would directly increase CPI inflation by over 0.5 percentage points, and indirectly (taking into account higher transport costs, etc.) by an additional 0.2-0.3 percentage points.
“In such a scenario, this year's inflation, instead of decreasing, could increase again to up to 3 percent. However, lower current inflation and the still strong zloty indicate that another interest rate cut in Poland will take place this week,” wrote BNP Paribas economists in a commentary on Monday.
Pass-through effect (transfer of the exchange rate to domestic prices) is difficult to estimate precisely, a lot depends on the timing of the business cycle and the durability of the change in currency rates. However, it can be assumed that weakening of the Polish zloty against the basket of currencies by 10%. may translate into an increase in CPI inflation by approximately 0.7 – 0.8 percentage points.
What's next? The uncertainty has increased
While before the outbreak of the war in the Middle East, the market estimated two or three cuts in interest rates in Poland, which would mean reducing the reference rate to 3.25-3.50%. at the end of 2026, this path is now burdened with greater uncertainty.
Bank Millennium economists, who expect a cut on Wednesday, noted that the next steps of the Monetary Policy Council seem more uncertain, which is why the market's attention will be focused on the content of the statement and on the Thursday conference of the NBP president.
“The results of the new macroeconomic projection will also be interesting, but it may quickly become outdated. Before the attacks, we assumed that the reference rate would reach the target level of 3.50% by mid-2026, but if the conflict continues, uncertainty about the next cut will increase,” they said.
— However, the issue of geopolitical tensions in the Middle East will probably be mentioned in the Monetary Policy Council's statement as a source of uncertainty as to the further path of interest rates, says Sebastian Roy from Pekao.
The reaction of the financial markets is moderate for now, but if the increase in oil prices and the weakening of the zloty become stronger in the near future, it may be an argument for the Monetary Policy Council to postpone the decision to cut interest rates (which is widely expected this week).
Ebury analysts, who also assume a cut of 0.25 percentage points on Wednesday, assume in the base scenario one more cut this year and a reduction in the interest rate to 3.5%. “However, this will of course depend on the upcoming data. The timing of this move is uncertain. We believe that decision-makers will not be in a hurry and may prefer to wait a while before deciding on another cut” – they noted.
Author: Maciej Rudke, journalist of Business Insider Polska
