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Poland’s central bank has cut interest rates for the first time since Prime Minister Donald Tusk returned to power at the end of 2023.
The National Bank of Poland lowered its benchmark interest rate by half a point to 5.25 per cent on Wednesday, the first cut since October 2023, following a recent drop in inflation in the EU member state.
Poland’s annual inflation rate fell to 4.2 per cent in April from 4.9 per cent in March, prompting NBP governor Adam Glapiński to guide last month that the central bank could soon cut rates. The bank aims to keep inflation at 2.5 per cent, but allows for variations of one percentage point above or below this target.
Tusk recently increased pressure on the bank’s monetary policy council to lower rates ahead of Poland’s presidential election on May 18, saying last week that it was “high time” for a rate cut.
On Wednesday, the prime minister wrote on X that interest rates had “finally” been lowered, adding: “Better late than never.”
Other central banks had moved earlier to cut rates, with the European Central Bank beginning its own reductions in Eurozone borrowing costs in June 2024.
On Wednesday the Czech National Bank made its second cut of the year, lowering interest rates by a quarter point to 3.5 per cent, in line with economists’ expectations.
Monetary policy has been a political sore point in Poland. Even before his pro-EU coalition won parliamentary elections in October 2023, Tusk had called for Glapiński to be ousted.
Tusk had accused Glapiński of mismanaging the central bank and also turning monetary policy into a political tool under the previous government led by the rightwing Law and Justice (PiS) party. Glapiński, who was re-elected in 2022 for a second term of six years, is a personal friend of PiS leader Jarosław Kaczyński.
Piotr Arak, chief economist at VeloBank in Warsaw, said the Polish rate cut came just in time because “keeping interest rates elevated for too long could risk harming the economy and the reputation of the central bank”.
Last year Glapiński had stuck to a hawkish rhetoric, emphasising upward risks to inflation, but he surprised economists with his sudden change of guidance in April.
Glapiński’s pivot suggested that the governor did not want to risk getting outvoted by more dovish members of his own monetary policy council, said Rafał Benecki, chief economist at ING Poland, at a time when there is “lower current and expected inflation, slowing wages growth and softer data from the real economy”.
Benecki is now forecasting “significant room for adjusting the restrictiveness of monetary policy in the coming quarters”. This could mean that NBP could cut the benchmark rate to 3.75 per cent by the end of 2026, Benecki added.
After taking office, Tusk unsuccessfully sought to make Glapiński appear before a tribunal that judges the eligibility of state officials.
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