Poland’s central bank is expected to keep interest rates steady for an extended period as geopolitical uncertainty endures, even after recent progress in talks between the US and Iran, according to policymaker Ludwik Kotecki.
Kotecki said the apparent end to the 15-week conflict provides support for price stability, but cautioned it is premature to consider reducing the policy rate. The Monetary Policy Council halted its rate-cutting sequence in March when the Iran war drove energy costs sharply higher, he noted.
"The Monetary Policy Council is unlikely to change interest rates until at least the end of the year, and perhaps even until March of next year, when base effects will bring the annual inflation rate down," Kotecki told Bloomberg News.
Poland’s key policy rate has been held at 3.75% for a third straight month in June. Since that decision, other policymakers including Gabriela Maslowska and Ireneusz Dabrowski have signaled that a move to lower rates looks more plausible than a hike. Those comments followed a surprise easing in inflation in May, when the annual consumer price reading slowed to 3.1%.
Kotecki said the council is now somewhat less inclined to raise rates than it was a month earlier, though even a month ago an increase was not the most likely outcome. "We are currently somewhat less inclined to raise rates than we were just a month ago - though even then this wasn’t the most likely scenario," he said.
The policymaker pointed out that a modest uptick in headline inflation could follow the government’s removal of a fuel price cap, which has helped restrain headline inflation. He described such a move as "purely an administrative issue," adding that core price pressures remain low and should keep policymakers from overreacting to any temporary rise in measured inflation.
For the 10-member Monetary Policy Council, the prudent approach is to wait and observe how developments in the Middle East will feed through to the Polish economy, Kotecki said. He stressed the need to assess the situation before making decisions about the policy stance.
The council had trimmed the key interest rate by 200 basis points to 3.75% between May 2025 and March as inflation eased into the bank’s target range, according to Kotecki’s account.
Commenting on the interim US-Iran agreement to reopen the Strait of Hormuz, Kotecki said the arrangement "gives cause for optimism regarding the relatively limited impact of the conflict in the Middle East on both inflation and economic growth in Poland." Yet he added a cautionary note: "At the same time, this is not a moment to signal a return to rate cuts."
Key points
- Poland’s Monetary Policy Council is likely to keep the key rate unchanged until at least year-end, possibly into March next year, according to Ludwik Kotecki.
- The central bank paused its rate-cutting cycle in March after energy prices rose sharply due to the Iran conflict; the key rate stands at 3.75% and was held for the third consecutive month in June.
- Recent easing in May inflation to 3.1% and comments from other policymakers suggest a move to cut rates has become more likely than a hike, but officials are waiting to see how geopolitical developments affect the outlook.
Risks and uncertainties
- Geopolitical developments in the Middle East remain a risk to energy prices and inflation dynamics - this primarily affects the energy sector and headline inflation measurements.
- The potential removal of a government fuel price cap could lift headline inflation temporarily - this administrative change could influence consumer-facing sectors and short-term inflation readings.
- Uncertainty about the timing of base effects that will push down annual inflation creates ambiguity for monetary policy - this has implications for banking, fixed income markets, and foreign exchange.