Central Bank cuts rates in July

Rate reduction surprises markets: At its meeting on 1–2 July, the Central Bank decided to cut the NBP reference rate by 25 basis points to 5.00%. The decision took markets by surprise—they had expected the Bank to hold again as in June.

Improving inflation outlook makes room for a cut: A more favorable inflation outlook drove the decision to cut rates: The Bank expects price pressures to return within the 1.5–3.5% target range in the coming months, and reduced its projections for full-year inflation through 2027. The Bank noted that wage growth is slowing, which should help ease inflation ahead. Moreover, recent signs of moderating economic momentum further motivated the decision.

Further cuts on the horizon: The Central Bank provided no explicit forward guidance on the future direction of interest rates. Our panelists expect 25–50 basis points of further rate reductions by the end of the year as inflation falls within target in H2. Softer-than-expected price pressures and GDP growth pose downside risks. The Bank will reconvene on 2–3 September.

Panelist insight: ING analysts said: “If, according to our forecasts, inflation falls to around 2.5% as early as July, this will justify further significant rate cuts after the holidays. […] We maintain our scenario of further interest rate cuts in September and November and reductions in 2026.”

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