A sharp cut at the start, and then a quarter in summer and autumn

PKO BP analysts predict that the NBP reference rate will be 4.75% at the end of 2025. According to them, reductions will occur in the summer, when inflation drops to 3.5%, and in the fall, when the tariff prices of electricity for households will be known.

The Monetary Policy Council (MPC) lowered the NBP interest rates by 50 basis points at its meeting that ended on Wednesday. The reference rate fell from 5.75% to 5.25%. The previous level of interest rates was maintained from October 2023.

PKO Bank Polski experts emphasized that the reference rate is at its lowest level since May 2022, and the decision was in line with market expectations. They noted that a 50 basis point cut is an unusual move, as since 2010, a cut of more than 25 basis points has occurred 7 times, including 3 times during the pandemic.

"In our opinion, this unusual move reflects the fact that the Council delayed the cuts for too long, underestimating the strength of disinflation and the scale of the economic cooling," analysts stressed.

In the opinion of PKO BP in the statement after the MPC meeting, "at this stage the Council does not want to announce further cuts". Despite this, the bank's experts expect that the MPC will continue to cut interest rates. According to PKO BP, the next ones will be at the level of 25 bp and spread over time. The next ones are expected in the summer and autumn. In the summer - as forecasted by the bank's representatives - inflation will fall to the target of the National Bank of Poland and will amount to 3.5% y/y. The NBP inflation target is 2.5% +/- 1 percentage point. The autumn cut is to be supported by data on stable energy prices for households.

"In our opinion, the reference rate will be 4.75% at the end of 2025. Next year, we expect a reduction of another 100 basis points, ultimately to 3.75%," analysts predict.

They noted that the MPC in its statement still draws attention to the high uncertainty regarding, among others, demand pressure, the labor market, energy prices and fiscal policy. PKO BP added that the Council also assessed that the pace of economic growth in the first quarter of this year will probably be slightly lower than in the fourth quarter of 2024, although a month ago it believed that the result would be similar.

The Monetary Policy Council will cut interest rates by a total of 100 basis points in 2025 - Credit Agricole analysts assessed in a commentary to Wednesday's MPC decision. In their opinion, the next rate cuts will take place in July.

"The content of the statement after the MPC meeting is consistent with our scenario of further easing of monetary policy, which will most likely take place in July this year, when the Council will review the results of the latest inflation projection and will again cut interest rates by 50 bp. Support for this scenario is our short-term inflation forecast, according to which in Q3 it will fall further significantly to 3.2%, and the July NBP projection will again outline the prospect of returning to the MPC target in 2026," Credit Agricole analysts assessed. "However, we do not rule out a scenario in which the Council will continue to cut rates in June and July, and their scale will be reduced to 25 bp," they noted.

They emphasized that, according to Credit Agricole's forecast, in 2025 the Monetary Policy Council will cut interest rates by a total of 100 basis points. "We also consistently assume that in the coming quarters the growth in energy prices will be limited, which is why we justify our expected strong decline in inflation in the second half of this year and its return to the inflation target in the third quarter of 2026," they reported.

In the opinion of Credit Agricole analysts, the content of Wednesday's statement after the Council meeting is neutral for the zloty exchange rate and the yield on Polish bonds.

Another interest rate cut is possible in July, said Santander Bank Polska Chief Economist Piotr Bielski. In his opinion, the rate will be cut by 25 basis points.

"The decision was announced at 15:47, which is quite late, which in our opinion indicates that the discussion on this move at the Council meeting was intense. The official statement published at 16:15 (slightly later than usual) did not contain any clear indications about the following months - it stated (as in previous months) that further decisions would depend on data, and the uncertainty factors mentioned demand pressure, the situation on the labour market, energy prices and further decisions on the fiscal policy front, as well as inflation abroad, including the effects of changes in trade policy," Bielski wrote.

The expert emphasized that the change in rates was described in the statement as an “adjustment.” He assessed this as a signal that Wednesday’s cut was not the beginning of a monetary policy easing cycle.

"We believe that a pause in June is the most likely scenario (as the next set of monthly data will not provide a strong case for further decisive easing in our view). Another rate cut could come in July, when the new NBP projection is published, and this is currently our baseline scenario. However, the size of today's move (-50 bp instead of a cautious -25 bp) and the tone of the statement, without any signals of an initial commitment as to the future course of rates, may well mean that this was a one-off adjustment," Santander's chief economist said.

He added that Thursday's conference by NBP President Adam Glapiński will be important for market expectations because it may provide clues as to further actions by the Monetary Policy Council.

"For now, we are sticking to our base scenario, in which the Monetary Policy Council will cut interest rates by another 25 basis points in July and keep them unchanged until the end of the year, in a situation where inflation stabilizes slightly below 3.5 percent between July and December and economic growth accelerates slightly," Bielski wrote.