Central Bank cuts rates in March

Policy rate reduced to a four-year low: At its meeting on 3–4 March, the National Bank of Poland (NBP) decided to cut the NBP reference rate by 25 basis points to 3.75% after having stood pat for two consecutive meetings. The reference rate has been reduced by a cumulative 300 basis points since its recent peak in 2023 and now stands at its lowest level since March 2022.

Low inflation supports decision: The NBP saw room for a cut, as inflation remained below the 1.5–3.5% target-range midpoint in January amid declining annual wage growth and a fall in employment in the enterprise sector. Moreover, the Bank lowered its inflation projections and raised its GDP forecasts from the prior month. Governor Adam Glapinski subsequently noted that the Bank had not taken into account energy price spikes due to the Iran war when deciding to cut rates in March, deeming it too early to assess the full impact of the crisis on domestic inflation and GDP growth.

Further rate cuts likely this year: Most panelists see the NBP reducing rates by an additional 25–50 basis points by year-end, as inflation should remain close to the Central Bank’s 1.5–3.5% target midpoint and GDP growth should broadly maintain 2025’s momentum. The rest of our panelists expect the policy rate to remain stable until year-end. That said, higher-for-longer energy prices and potential rate hikes by the ECB could prompt the NBP to tighten its policy stance. The NBP is set to reconvene on 8–9 April.

Panelist insight: EIU analysts said: “Our baseline case continues to assume another 25-basis-point cut to maintain a real interest rate of around 1%, probably in August. Risks to this outlook are rising rapidly owing to the fluid nature of energy prices and the level of transmission towards retail Polish energy and electricity prices. Furthermore, German fiscal stimulus and rising defence spending further add to risks of a delay or even a short-term tightening of monetary policy.” ING analysts commented: “The strike on Iran is clearly a supply shock, which central banks usually look through. Unlike the Covid and Russia-related shocks, which combined both supply and demand effects and led to sharper price increases and de-anchored inflation expectations, this shock was more limited in scope. Also, the strike on Iran may dampen economic activity and weigh on business sentiment, with possible adverse effects on investment activity. At the current juncture, the shock seems to be a more persistent risk for private investments than for inflation. The NBP should continue easing, but the terminal rate may be higher than the 3.25 we expected so far.”

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