Cutting yes, but not more than once. Masłowska, MPC: There is a possibility of further adjustments

In 2025, there is a possibility of another interest rate adjustment, although it seems likely not more than once, Monetary Policy Council member Gabriela Masłowska told PAP Biznes. She added that the Council is refraining from sharp rate cuts to avoid necessitating rate increases, which would undermine macroeconomic stability.

"There are three scenarios for this year: maintaining interest rates at the current level, 4.75%, increasing them, and lowering them. Each option is possible depending on the incoming economic and inflation data. However, there is naturally more room for a rate cut than for a rate hike, which I don't anticipate at all, although let's also remember how serious the risks to inflation are. The disinflation process in Poland, as well as globally, is not over. One could say that inflation, although it is declining and we are within the inflation target, is still lurking," Masłowska said.

"I think it's safer to cut interest rates on a smaller scale, but this allows for more frequent cuts. This solution is, in my opinion, safer. I see the possibility of another rate adjustment this year, although it seems unlikely to be more than once," she added.

Masłowska informed that, in line with what the President of the National Bank of Poland had previously communicated, the Council is not announcing any path of interest rate cuts.

"We, as the Monetary Policy Council, are acting to bring inflation down and keep it within the target range. In the face of a volatile, highly dynamic internal, external, and geopolitical situation on the commodity market, amidst high uncertainty, announcing a series of rate cuts would be too risky," the economist pointed out.

The President of the National Bank of Poland announced after the September meeting that there is a cautious willingness among the Monetary Policy Council to cut interest rates, but the Council also sees risks to inflation.

According to Masłowska, there are several main factors preventing monetary policy easing. The most important is loose fiscal policy, followed by the economic climate, administered prices, and the situation on the labor market.

"The key factor is fiscal policy. The general government deficit in 2025 is expected to approach 7%. Such a deficit, given economic growth of 3.5%, is unimaginably high. Therefore, the government's fiscal policy has been significantly loosened, even though the economy is in good shape. Some politicians and economists argue that this is due to military spending. However, calculations show that military spending only contributed 20% to the increase in public debt. As the deficit grows, public debt is also growing rapidly, exceeding 60% of GDP this year according to EU methodology, and next year the debt will likely approach 67% of GDP. Such a rapid increase in debt has never occurred before; this is an unprecedented situation," Masłowska points out.

"Especially since the economy is in good shape, it does not require support. In its budget opinion, the National Bank of Poland (NBP) always emphasizes that increasing debt creates problems for macroeconomic stability. Such fiscal policy poses a risk of maintaining low inflation in the near future. That is, inflation is falling, but the risk of it rebounding for this very reason is quite high," she added.

Regarding the economic situation, Masłowska noted that the GDP result in the second quarter (3.4% year-on-year) is the result of rapid growth in consumption, which also means inflationary pressure.

The MPC member noted a slowdown in wage growth in Poland, but believes that their dynamics are still high (8.8% in the national economy in Q2) and disproportionate to labor productivity and the pace of economic growth.

"This translates into consumption, not savings and investments, which has a pro-inflationary effect. Such a high rate of wage growth also puts upward pressure on the prices of services, which is why the price dynamics of services, although declining, are still high," she added.

According to Masłowska, if energy prices are unfrozen from October 1 (the government has announced a further freeze and a drop in prices for households below the freeze level from 2026), inflation will rise from the current level of 2.8% to 3.6% in the fourth quarter of this year, i.e. exceed the upper limit of the deviation band.

"In January, we are also likely to see a change in tariffs for heating and gas, water supply, and waste disposal. An increase in excise tax and the sugar levy is also planned. In the longer term, in 2027, there may be an increase in emissions costs under ETS2, which would significantly increase inflation," said the MPC member.

"Therefore, we are refraining from radically lowering interest rates, guided by the principle of not returning to high inflation and not necessitating a new interest rate hike, which would not be conducive to economic and financial stability. The Czechs are most likely struggling with this situation at the moment. They lowered rates quickly and significantly, and now they will probably have to increase them slightly – we want to avoid that," she added.

Traditionally, in September, the Monetary Policy Council adopted the Monetary Policy Guidelines for the coming year.

Masłowska, asked about possible changes in the document compared to this year's, informed that in the Assumptions for 2026 the Council maintained the current monetary policy strategy of the National Bank of Poland and the main statutory objective of monetary policy remains to ensure price stability.

"At the same time, monetary policy will be conducted in a way that supports sustainable economic growth and financial system stability. This means that the National Bank of Poland will continue to pursue a medium-term inflation target of 2.5% with a traditional deviation of +/- 1 percentage point. The primary instrument will be interest rates, and the policy will be implemented under a floating exchange rate regime, with interventions on the currency market not ruled out. This will be a smooth continuation of the current monetary policy assumptions," she added.

The publication of the full Assumptions will take place no later than September 26, according to the list of acts awaiting publication by the RCL.

At its meeting on 2-3 September 2025, the Monetary Policy Council reduced all NBP interest rates by 25 basis points, including the reference rate to 4.75%.

Rafał Tuszyński (PAP Biznes)

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