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Poland cuts interest rates amid rising inflation. What does this mean for the zloty exchange rate?
Did the NBP loosen monetary policy too soon?
September signals from the NBP suggest that the discussion about interest rates in Poland is not over yet. The Monetary Policy Council has been operating for months in a higher-inflation environment, and in hindsight March’s rate cut looks increasingly questionable. For people exchanging money and saving, one thing matters: cutting rates too quickly usually weakens the zloty and changes the appeal of deposits, bonds and loans.
In March, without an up-to-date NBP inflation projection and with the fuel shock being treated as a temporary phenomenon, the MPC decided on another rate cut. Earlier, it had lowered rates by 175 bp. in 2025 and by 100 bp. in autumn 2023. As a result, the reference rate fell to its lowest level since April 2022.
The problem is that CPI inflation has started to accelerate. After falling to 2.1% in January and February, it rose to 3.0% in March and then to 3.2% in April. In June it eased to 2.5% mainly because of temporary changes in taxes on petrol and diesel and lower fuel prices globally. In July it was back at 3.0%, and in August it reached 3.4%. For September, the market sees a reading of around 4%.
What this means for savers and the market
If September CPI inflation exceeds 3.75%, real interest rates in Poland will turn negative again. That means money kept in a deposit or in less profitable instruments may lose purchasing power faster than it earns interest. From the point of view of an ordinary household, it is a sign that saving alone no longer protects against a loss in the value of money.
NBP Governor Adam Glapiński said at the September news conference that without the rise in inflation, he would lean toward a small rate cut. He added, however, that there is no room for quick changes for now. Meanwhile, Ireneusz Dąbrowski, a member of the MPC, said the most likely scenario is keeping rates unchanged for one or two quarters, and then there would be greater room for a cut than for a hike.
The financial market sees it differently. FRA rates are pricing in an increase in the short-term interest rate to around 4.50% over a 2-3 quarter horizon. A similar signal comes from the bond market, as the yield on 2-year government bonds stands at around 4.50%, or almost 100 bp. above the current NBP reference rate.
That is also important for people watching the zloty exchange rate. If the market concludes that rates should be higher, the zloty usually gets support. If, however, the prevailing view is that monetary policy is too loose, pressure on savers grows faster than on borrowers.
The coming months will show whether the market or the MPC is right. One thing is clear for now: with CPI inflation close to 4% and the reference rate just below the median for the past 25 years, the debate over the next direction of monetary policy is only just beginning.
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