Glapinski Puts 2025 Polish Rate Cut Back On the Agenda

(Bloomberg) -- Poland’s central bank Governor Adam Glapinski said an interest-rate cut is possible around the middle of next year if inflation stays under control, softening his rhetoric.

Glapinski said on Thursday that his comments from July, when he stated that 2026 was the earliest that the Monetary Policy Council could reduce borrowing costs, were “misunderstood.” His panel has kept its benchmark steady at 5.75% since last October, angering government officials who have called for lower rates. 

“We can hardly wait for the moment to cut rates,” Glapinski told reporters during his monthly news conference. The mood in the 10-member rate-setting panel is “very far from hawkish,” he said.

Poland’s first reduction would most likely be a quarter-point cut and come after inflation stabilized at around 5% and central bank projections showed it declining going forward, he said. This will likely happen around mid 2025, according to Glapinski.

While the governor mentioned fast-growing wages and fiscal policy among the risks for achieving price stability, he said that the most likely scenario was for inflation to start declining in the second half of 2025 after ending this year at or just above 5%. 

Dovish Message

“The overall message appears more dovish than in previous months and even though fiscal policy was mentioned as a risk to inflation, it does not seem to be enough to stop the MPC from cutting rates in 2025,” said Piotr Kalisz, chief economist at Bank Handlowy SA. He expects about 100 basis points of cuts in the second half of next year, with a risk that easing starts earlier.

ING Bank Slaski SA chief economist Rafal Benecki said the market understands the comments as reflecting a “softening,” with the zloty weakening 0.2% against the euro on Thursday. Even though Glapinski tried to walk back his hawkish July comments last month, his dovish tone on Thursday surprised some analysts. 

Poland’s inflation has accelerated beyond the central bankers’ target range in the past two months, while Prime Minister Donald Tusk’s government proposed a fiscal deficit of 5.5% of economic output next year, compared with an upwardly revised 5.7% shortfall seen this year. Glapinski said the 2025 budget proposal was “generous and loose.”

“So far, we have consistently said that the rate cuts will not happen before 2026,” said Bank Pekao SA economists, led by Ernest Pytlarczyk. “Today’s press conference by the NBP governor is the biggest challenge to this forecast.”

--With assistance from Maciej Martewicz and Konrad Krasuski.

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