Poland's Monetary Policy Council, the rate-setting body of the National Bank of Poland (NBP), kept the central bank’s reference interest rate unchanged once again at 5.75% on January 16. (chart)

The decision is in line with expectations, but the bank’s messaging acquired a more hawkish tone this month. It pointed to worries about inflation rising abroad and the inflationary effect at home of the government’s partially unfreezing energy prices in mid-2024.

“Inflation in major advanced economies increased in recent months, which largely was attributed to higher growth of energy prices. At the same time, core inflation is still higher than headline inflation, amid elevated growth in services prices,” the NBP noted in a statement.

In Poland, “inflation will remain markedly above the NBP inflation target, driven by the effects of the already introduced increases in energy prices, as well as rises in excise duties and administered services prices,” the central bank also said.

Polish consumer price index (CPI) maintained its growth rate at 4.7% year on year in December, Poland’s statistical office GUS said in a flash estimate at the end of October.

The outlook for 2025 is highly uncertain, according to the central bank, with the expected further uncapping of energy prices in the second half of 2025 that “may contribute to extending the period of inflation staying above the target.”

The NBP also said inflation should return to its target – 2.5%, give or take 1pp – in the medium term. However, the central bank remains uncertain about fiscal and regulatory policy measures, the pace of expected economic recovery in Poland, and labour market conditions.

Any discussion about a dovish pivot is premature, analysts say. If anything, the NBP again sounded more hawkish in January than in the preceding months “due to greater emphasis on external inflationary factors and the risk of prolonged elevated inflation,” according to PKO BP. 

“References to accelerating economic growth serve as an additional signal that a longer period of restrictive measures may be necessary to properly assess the risk of higher demand translating into inflation,” PKO BP also said.

This increases the likelihood of the NBP’s first rate cut coming later the previously expected this year and the overall scale of monetary easing being smaller.

“A restart of the interest rate cut cycle is expected around mid-year – June or more likely July – after the presidential elections,” Bank Millennium said.

“The scale of cuts in the second half of the year will likely be limited, considering the outlook for solid economic activity, loose fiscal policy, and wage growth exceeding the long-term average,” Bank Millennium also said.

The NBP has now left the key interest rate frozen at its two-decade high for 15 months now. The NBP last time cut rates by a combined 100bp in September and October of 2023 in contentious decisions – seen as political – executed just before the general election.