News & analysis

The National Bank of Poland has maintained the base rate at 5.75%, a surprise for markets that had projected a further 25bp cut to policy rates in a repeat of October’s policy decision. The unexpected pause in NBP easing raises yet more questions around the central bank’s reaction function, particularly in light of inflation that continues to fall rapidly.

Whilst disinflation progress is expected to slow, today’s announcement appears inconsistent at first glance with decisions taken over recent months, with the accompanying policy statement also doing little to shed light on the central bank’s change of tack. Given this, all eyes will be on Governor Glapinski’s press conference tomorrow for more detail on the reasoning behind today’s hold.

For now though, the move is being welcomed by FX markets, with today’s announcement seeing the zloty rally around half a percent as traders upgrade prospects of a more hawkish approach to policy easing from the NBP.

Heading into today’s decision, most economists, including ourselves, had looked for a further 25bp of policy easing. Indeed, of 39 economists that submitted estimates to Bloomberg, only eight had looked for a hold in rates. That said, having kicked off policy easing with a supersized 75bp rate cut in September, before slowing to just a 25bps of easing in October, there is naturally significant confusion around the NBP’s reaction function. Notably though, much of the recent policy easing had been viewed as a favour to the ruling PiS party, seen as closely aligned with several MPC members, and with a general election having taken place on October 15th.

The inability of PiS to secure a majority in the Sejm, however, made a coalition of opposition parties the favourites to form the next government, and threw the NBP’s likely policy decision into doubt leading up to this latest announcement.

Whilst the election outcome likely took the prospect of more jumbo rate cuts off the table in our view, today’s decision remains a surprise given Governor Glapinski’s continued dovish tone, especially with inflation cooling more quickly than expected, printing at just 6.5% in the preliminary October release. This is not only down from 8.2% in September, but the 0.2% MoM price growth recorded last month is actually the highest figure seen for half a year. Granted, the policy statement noted that “The Council judges that the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term”, and it is true that disinflation is expected to slow over the coming months. To this point, updated inflation projections contained in the statement expect price growth to fall within the 3.2% to 6.2% range in 2024, and 2.2% to 5.3% range in 2025. Even so, the 2024 numbers represent a downward revision on the July projection, with the 2025 figures only seeing a fractional upwards adjustment. It is therefore puzzling to see a statement stressing the NBP’s data dependency, whilst simultaneously keeping rates on hold even as both current data and inflation projections seemingly improve.

We would note, however, comments by several of the more hawkish MPC members prior to this latest rate announcement. These had suggested that the NBP should stand pat and wait to see the fiscal plans of any incoming government before continuing with the easing cycle, a point also alluded to in the policy statement in our view. Given this we now expect policy easing to continue, but likely on a stop start basis, with the next rate cut unlikely to be delivered until the new government is confirmed, along with its spending program.



Nick Rees, FX Market Analyst


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