The Monetary Policy Council, the rate-setting body of the National Bank of Poland (NBP), cut the central bank’s reference interest by 25bp to 5.75% (chart) on October 4.

The reduction was in line with the market consensus after a shock cut of 75bp in September in a move that critics attributed as political and aiming at helping the Law and Justice (PiS) party ahead of an election on October 15.

“Incoming [macroeconomic] data confirm weak demand and cost pressure in the economy as well as reduced inflation pressure amongst the weakened external economic conditions,” the NBP said in a statement.

CPI growth came in at 8.2% y/y in September, falling 1.9pp versus the previous month's annual reading, a flash estimate by Poland’s statistical office GUS showed late last month. The inflation rate is now just over 10pp below February’s record high.

Analysts say the NBP may now administer one more cut of 25bp in November before falling back into a wait-and-see mode to assess the effects of the easing on inflation and economic growth.

The latter continues to be underwhelming. Polish GDP slid 1.4% y/y in the second quarter, easing further from a contraction of 0.6% y/y in the preceding three months, seasonally adjusted data from GUS showed in August.

“After the interest rate cuts in September and October, the room for further interest rate reductions this year has significantly diminished,” Bank Millennium said in a comment.

The NBP will watch out for the potential weakening of the Polish zloty under hawkish narratives from the Fed and the ECB, according to analysts.

“There is still a possibility of one more 25bp interest rate cut in November. The argument for this could be another significant drop in CPI inflation in October to around 7% y/y,” Bank Millennium said.

Following a rates decision, the NBP Governor Adam Glapinski will discuss Poland’s monetary policy and macroeconomic outlook at a press conference at 4 pm on October 5.