UPDATE: Poland's MPC may start cutting rates in Q2 2025, says c. bank governor

It appears that the Monetary Policy Council will start interest rates' cuts cycle in the second quarter of 2025, Poland's central bank NBP governor Adam Glapinski assessed at the press conference following a Monetary Policy Council's decision on interest rates made on Wednesday. He added that he had softened his stance towards the September communication.


"At the moment it looks like we will possibly be lowering after March, after first or second quarter of next year. And let's hope for some kind of positive miracle that could make it happen sooner, but we don't see what could it be so far," Glapinski said.

"I see that all members of the Council, or almost all of them, are waiting for when the interest rates can finally be cut. (...) I also succumb to this and would also like to start a cycle of reductions. If, let's assume an optimistic scenario, in March there will be a projection which will say that the inflation rate has stabilised at this level and the process of decreasing inflation over the coming quarters starts right on the threshold, then of course there will be a cycle of cuts," he added.

During a press conference in September, Glapinski stipulated that the first rate cut of 25 basis points would not be an announcement of a monetary easing cycle.

On Thursday, October 3, NBP's governor admitted that he had softened his stance towards the September press conference, where he had announced rate cuts rather around mid-2025 or slightly earlier.

"I've softened [my stance] by looking at the data and the reasons for inflation. These are either regulatory reasons either coming from the base or the fact that wages have been rising fast. It sort of dies out," Glapinski noted.

"I don't see on the part of the regulatory factor, i.e. the government, any desire to make further regulations that would increase inflation beyond what is announced. I see the rate of wage growth is high, in double digits, but yet it is declining rapidly. I don't see inflationary expectations pushing wages and wages demands somehow excessively upwards. I also see the economy stalling or barely growing abroad," he added.

The central bank's governor expressed his hopes pinned to the March's projection.

"I hope that in March there will be a projection of the kind that will substantively prompt Council members to start the cycle of cuts," Glapinski said.

He listed five main risk factors for inflation, the importance of which, in his opinion, has decreased in relation to previous assessments. According to the governor, these are: the strength of the economic recovery and consumption, the persistence of high wage growth, the deterioration of inflation expectations, the government's fiscal policy and the economic climate surrounding the Polish economy.

"Data from recent months on retail sales and industrial output indicate that the risk of excessive economic growth is currently limited. (...) It seems that there will not be such an excessive acceleration of economic growth that would cause inflationary pressure," Glapinski assessed.

"We expect that wage growth will decelerate, certain trends already exist at the moment, and it will not be so strongly pro-inflationary either, but we will see how it will be," he added.

In the view of Poland's central bank governor, it is difficult to predict how an increase in energy prices will affect the inflation expectations.

"A rise in energy prices could push inflation expectations higher. Maybe yes, maybe no, for now it is difficult to say. For now, there is no clear deterioration in inflation expectations," Glapinski said.

"However, the effects of rising energy prices may not be felt more by households until winter, when the heating bills start coming in after winter, and then we will see what happens in terms of inflation expectations," he added.

The NBP's head noted that the government's draft budget for 2025 plans a gg sector deficit of 5.5 percent, although armaments spending is responsible for a large part of this.

He added that an additional burden on public finances will be the reconstruction after the floods, although the scale of this for the budget will be moderate.

"Despite the formal launch of the excessive deficit procedure by the EC, it can be seen that the pressure from the European side is non-existent, and it can be seen in turn that the project declared by the government to reduce the budget deficit of the entire public finance sector is postponed for the next years," Glapinski assessed.

He stressed that he does not judge this approach, but it is one of the inflationary risks in his view.

According to Poland's central bank NBP, core inflation is worryingly high and there is no tendency to decrease.

"Core inflation is worryingly high and there is no downward trend that we would like, it is contrary to what is publicly claimed that core inflation in Poland is the lowest in our region," Glapinski said.

The NBP's forecasts indicate that CPI could remain around 4.5-5.0 percent until the end of the year, be elevated until around mid-2025, then decline, and return to the target permanently in 2026.

Governor Glapinski continued that core inflation probably increased in September, which is partly a statistical effect of the base effect and partly may be related to continued high wage growth.

"The current level of inflation exceeds the NBP's inflation target. We recognise that the sources of this increase are mostly independent of monetary policy," he stressed, adding that "NBP has no influence on regulatory and administrative decisions on energy prices (...) or wages, especially in the public sector".

Poland's central bank estimates that GDP dynamics in the third quarter could have been close to 3 percent, roughly in line with the second quarter.

At the same time, the NBP's governor pointed out that investment growth is likely to be very low all the time. In addition, industry and exports are performing poorly.

He also highlighted the stability of the Treasury bond market in the face of high government borrowing needs.

"There will be very large government borrowing needs, i.e. issuing bonds, placing these bonds abroad and at home - I do not see any threats here (...). On the other hand, there is the question of whether the bond market will be orderly, whether there will be no spikes," Glapinski noted.

"(...) NBP always makes sure that the secondary bond market is orderly, that there are no sudden changes in yields. At the very end is the NBP and we will never allow that to happen," he stressed.

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