Central Bank delivers first rate cut since 2023 in May

Decision meets market expectations: At its meeting on 7 May, the Central Bank decided to ease interest rates for the first time since October 2023, cutting the NBP reference rate by 50 basis points to 5.25%. The move was in line with market expectations.

Improving inflation outlook and softer GDP growth motivate cut: Low current and expected inflation, decreasing wage growth and cooling GDP growth chiefly motivated the cut. Most notably, authorities now see inflation returning to around target about a year earlier than they had previously estimated in March. Central Bank President Adam Glapinski also struck a dovish tone with regard to risks to inflation, noting an improving inflation outlook.

Panelists expect more cuts in H2 2025: Absent an explicit forward guidance on the future direction of interest rates in the press release, President Glapinski subsequently commented that the Bank will likely stand pat in June before cutting rates again in H2 2025. That said, the Bank may adjust reserve requirements or the corridor for interest rates at its upcoming meeting. Our Consensus is for about 50 basis points of further rate cuts, likely to be delivered in Q3–Q4. Softer-than-expected inflation and GDP growth are downside risks to the policy rate. The Bank will reconvene on 3-4 June.

Panelist insight: ING’s Adam Antoniak and Mateusz Sutowicz said: “In our view, the next rate cut will occur in July, followed by further cuts in September and November. Consequently, the reference rate should be 4.50% by the end of 2025. In 2026, we anticipate further rate cuts by an additional 75bp (reference rate at 3.75% by the end of next year). Our inflation forecasts are slightly more optimistic than the NBP's expectations, which leads us to anticipate continued monetary easing by the central bank in the coming months.”

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