A sharper-than-expected fall in Polish inflation has increased the likelihood that the National Bank of Poland will resume interest rate cuts at next week’s policy meeting. (chart)

Headline inflation dropped to 4.2% y/y in April, down from 4.9% in March, and just below market expectations. The decline was driven by falling fuel prices and a steeper-than-anticipated drop in food inflation, which fell to 4.2% from 6.7% in March.

“This inflation print is probably enough to tip the balance at the central bank towards restarting the monetary easing cycle next week,” said Nicholas Farr, Emerging Europe Economist at Capital Economics. “We are now pencilling in a 25bp interest rate cut, to 5.50%, when the MPC meets on May 7.”

Core inflation, however, is estimated to have edged up to 3.9% from 3.6%, suggesting underlying price pressures remain. While some policymakers have floated the idea of a deeper 50bp cut, Farr believes a more measured approach is likely.

“With core inflation still showing signs of strength, we think that most policymakers will favour a 25bp rate cut,” he said.

The central bank has adopted a more dovish tone in recent weeks amid signs of weaker economic activity. However, the labour market remains tight, and Poland is expected to be relatively insulated from the broader impact of US tariffs on global trade.

“With the labour market tight and our baseline view being that the hit to Polish economic growth from US tariffs is limited, we think that underlying inflation pressures will remain strong,” said Farr. “It will take until 2026 for headline inflation to fall back to the 1.5–3.5% target range on a sustained basis.”

Capital Economics forecasts a total of 75bp in rate cuts by the end of the year—less than what is currently priced in by financial markets.