The Monetary Policy Council, the rate-setting body of the National Bank of Poland (NBP), kept the central bank’s reference interest rate unchanged at 5.75% (chart) on November 8.

The decision runs against market expectations of a 25bp cut. The Council explained in a statement that it had "adjusted" interest rates in previous months and will now pause active policymaking in the light of "uncertainty regarding the shape of future fiscal and regulatory policies and their impact on inflation."

The rate-setter thus referred to the incoming change of the government after the incumbent Law and Justice (PiS) lost majority to a tripartite centre-left coalition in an election last month.

The Council had slashed rates by a combined 100bp in September and October, including a shock cut of 75bp in September that many analysts said was a political decision before the election. 

"In our opinion, after today's decision, the financial market will need to adjust its optimistic expectations regarding future interest rate cuts. We believe that the NBP reference rate may remain at 5.75% in the coming quarters, probably for most of 2024," Santander Bank Polska said in a comment. 

CPI growth came in at 6.5% year on year in October, falling 1.7pp versus the previous month's annual reading, a flash estimate by Poland’s statistical office GUS showed late last month. The inflation rate is now nearly 12pp below February’s record high.

Polish GDP disappointed in the second quarter, as it slid 1.4% y/y, easing further from a contraction of 0.6% y/y in the preceding three months, GUS data showed in August. A flash GDP change reading for Q3 is due next week.

The central bank’s current inflation and GDP projections, which were released together with the rates decision, assume inflation of 11.3%-11.5% in 2023 (against 11.1%-12.7% in the July projection) before a decrease to 3.2%-6.2% in 2024 (versus 3.7%-6.8% expected in July) and 2.2%-5.3% in 2025 (2.1%-5.1%).

GDP growth is now expected at -0.1%-0.6% in 2023 (against -0.2%-1.3% in the July projection), 1.9%-3.8% in 2024 (versus 1.4%-3.3% expected in July) and 2.4%-4.7% in 2025 (2.1%-4.4%).

NBP Governor Adam Glapinski will discuss Poland’s monetary policy and macroeconomic outlook at his monthly press conference on November 9.