(Bloomberg) -- Poland should push back the timing of interest rate cuts until the third quarter of 2025 amid stubborn inflation and loose fiscal policy, according to a senior policymaker.
Ireneusz Dabrowski, who often votes along with central bank Governor Adam Glapinski, previously indicated the possibility of rate reductions from March. He changed his mind after the latest inflation projection, which showed price growth remaining above target during 2025.
“Currently, the most likely scenario is that a rate cut discussion would take place only in the third quarter,” Dabrowski told Bloomberg. “I haven’t become more hawkish. Earlier, I simply hoped for better data and for inflation to come down faster. Loose fiscal policy is also a factor.”
Poland’s Monetary Policy Council, which includes Dabrowski, has kept the benchmark rate unchanged at 5.75% since late 2023. The government has set next year’s budget deficit at 5.5% of the economic output, continuing a “relatively loose” fiscal stance, according to Fitch Ratings. Glapinski also said last week that the budget was delaying potential rate cuts.
Dabrowski said that Poland’s economy was still in good condition, despite gloomier central bank growth forecasts. He had expected inflation to peak in late 2024 and slow down from there — while the latest projection shows price growth topping out at 6.6% in the first quarter of 2025.
He said that looking at other policymakers’ public comments, the idea of faster rate cuts, signaled by some officials in the past months, “has not strengthened within the Monetary Policy Council.”
“Interest rate cuts will have to wait” and even if the European Central Bank, the Federal Reserve and central banks in eastern Europe continue to ease, the expected disparity between these markets and Poland will likely be too small to cause any serious turbulence, according to Dabrowski.
Once the MPC starts reducing borrowing costs, it should be a gradual process and Dabrowski said that “no significant moves” are in store.
“As for the total scale of reductions expected by the market, I would like us, in an optimistic scenario, to be able to cut rates by more than 200 basis points in total by the end of 2026,” Dabrowski said.
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