Polish RPP cuts rates by 75 bps

To date, Glapiński has been declaring only gradual cuts to interest rates. Radek Pietruszka/PAP

Poland's Monetary Policy Council (RPP) cut its reference rate by 75 bps to 6.00 percent, totally defying the expectations of the majority of economists of a 25-bps cut, the RPP said following its September sitting.

The RPP also cut the deposit rate to 5.55 percent, the lombard rate to 6.5 percent, rediscount rate to 6.05 percent and the discount rate to 6.10 percent.

The RPP said the cuts were due to optimistic inflation forecasts due to limited demand.

"In the Council's assessment, recently incoming data point to a weaker demand pressure than previously expected, which will contribute to a faster return of inflation to the NBP inflation target," it said. 

In council's opinion the move, which caught the local pundits totally off-guard, will be "conducive to meeting the NBP inflation target in the medium term." The central banks's inflation target is 2.25 percent.

The Council is slated to publish its policy statement at 16:00 local time Wednesday, while the follow-up monthly presser of Central Bank (NBP) governor Adam Glapiński is scheduled for 15:00 Thursday.

The decision totally defies economist expectations for ether no cut or a small one of 25 bps.

Local economists were split on the September rates decision: while a majority of 11 out of 19 economists believed the council would cut rates by 25 bps, as weak data from the real economy outweighed inflation's failure to decline to single-digit levels in August, others expected the council to wait till October with the first move.

To date, Glapiński has been declaring only gradual cuts to interest rates.

The September RPP decision follows a slightly higher-than-expected CPI flash estimate of 10.1 percent, year on year, for August on no monthly increase and after a 10.8-percent year-on-year reading in July.

Still, data from the real economy pointed to a deeper-than-expected GDP decline in Q2. Also higher-frequency data for July pointed to a persistently soft real economy.

Back in July, Glapiński indicated the council could cut rates in September if inflation fell to single digits in August, and there was a 90-percent chance of inflation falling further in coming quarters. Still, after the August data, the market expected the NBP to shun Glapiński's condition for single-digit inflation.

At its last decision-making meeting in July, the RPP kept the basic reference rate intact at 6.75 percent, but with NBP head Adam Glapiński announcing the council ended the tightening cycle at the sitting.

Poland's RPP paused hiking interest rates after raising its reference rate to 6.75 percent in September 2022, for months adopting a wait-and-see approach before officially ending the tightening cycle only in July.

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