Surprise drop in inflation eases RPP's task on interest rates; NBP to release forecasts

An unexpected drop in Poland's inflation rate to 2.5% year-on-year in June has significantly altered the outlook for interest rates, virtually eliminating the possibility of further hikes by the Monetary Policy Council (RPP). The actual figure surprised analysts, who had predicted inflation closer to 2.8%, and aligns with the National Bank of Poland's (NBP) target range.

The decline was fueled by lower prices for fuel and food. This development provides relief to the RPP, which had previously considered rate increases in response to price shocks. "Inflation remains under control and should therefore support market expectations of no interest rate hikes in Poland in the coming quarters," noted Marcin Luziński, an economist at Erste Bank Polska. He added that this could encourage the more dovish members of the RPP to signal a potential return to rate cuts.

Analysts now suggest that discussions about lowering interest rates might begin as early as 2027, a notable shift from earlier predictions of multiple hikes within the next 12 months. The market's sentiment is reflected in futures contracts on interest rates. The RPP will review the NBP's latest inflation and GDP projections during its upcoming meeting on July 7-8. President Glapiński is expected to highlight the successful management of inflation and the central bank's resilience against global price shocks during his post-meeting conference.

“

Inflation remains under control and should therefore support market expectations of no interest rate hikes in Poland in the coming quarters. It may also encourage the dovish wing of the RPP to signal that a return to rate cuts cannot be ruled out.