The Monetary Policy Council (MPC) rejected a motion for an interest rate cut of 0.50pps across the board during its May sitting, but accepted a motion to cut the rates by 0.25pps, according to a release by the National Bank of Poland (NBP). As a result, the key reference rate has been lowered to 3.00%.

NBP published the minutes of the sitting, which said that the majority of MPC members assessed that they should be lowered at the current meeting. However, their opinions differed as to the scale of the decrease. In turn, other Council members were of the opinion that the interest rates should be kept unchanged.

MPC's majority was of the opinion that an adjustment of monetary policy easing cycle was justified, as the incoming data did not indicate any clear signs of economic recovery in the Polish economy and its environment, while the decline in inflation was stronger than in the projection, which raised the risk of inflation staying below the target in the medium term. Moreover - despite the lowering of interest rates to date - faster than previously forecasted decline in inflation and inflation expectations had translated into an increase in real interest rates.

At the same time, some Council members pointed out that - amid ample liquidity in global markets - a relatively high interest rate spread between Poland and developed economies might excessively intensify the portfolio capital inflows into Poland. According to a few MPC members, interest rates should be adjusted as fast as possible, which supports the greater scale of their reduction at the current meeting.

However, other MPC members believed that due to expected acceleration in the GDP growth in the coming quarters and upside risks to inflation, the NBP interest rates should not be lowered at the current meeting, and furthermore, a few of those Council members argued that the cycle of the monetary policy easing should be terminated.

Bank economists expect another interest rate cut - most likely by 25bps - already in June and possibly also in July. Some of them believe that at that time, the policy loosening cycle (that has so far brought the rates down by 1.75pps in total) will be completed. The reference rate is currently at the lowest ever level.