Polish Central Bank to Cut Rates Just Before Election Yet Again

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(Bloomberg) — Poland’s central bank is set to cut interest rates for the first time since 2023 and like the last time the decision will come just days before an important election.

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Governor Adam Glapinski signaled his intention to resume monetary easing in an abrupt about-face last month after insisting earlier that borrowing costs could stay unchanged even until 2026. But a recent string of softer inflation numbers changed his mind.

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Still, the pivot coming so close to a presidential ballot on May 18 has sown confusion among investors, drawing parallels with a parliamentary election in October 2023. Glapinski, an ally of the previous administration, cut rates at two consecutive meetings before the vote, which unexpectedly brought the current government to power. He has kept borrowing costs steady since.

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For Kevin Daly, a senior economist at Goldman Sachs Group Inc., that means anything between a full-point cut to rates being left unchanged is possible when policymakers announce their decision on Wednesday. He is among the 28 of 34 central bank watchers surveyed by Bloomberg News who see a 50 basis-point reduction as most likely. Another five expect a quarter-point move and one anticipates no change.

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“The uncertainty around the likely outcome remains high,” said Daly. “The National Bank of Poland’s reaction function is highly unpredictable and it has been prepared to move in large steps in the past.”

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The decision comes amid a heated election campaign, where a number of candidates have called on the central bank to start easing. Prime Minister Donald Tusk joined the chorus last week, saying that it’s “high time to lower interest rates” after inflation unexpectedly slowed to 4.2% in April, the lowest level since July and within striking distance of policymakers’ tolerance range of one percentage point around the 2.5% target.

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Glapinski, who has long been at odds with Tusk’s party, has repeatedly rejected accusations that he is acting out of political expediency and has called the central bank “most independent” from politics in Poland’s history.

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Wrong-Footing Markets

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The governor has a history of wrong-footing financial markets. The 10-person Monetary Policy Council voted to slashed the benchmark by a total of 100 basis points just before the 2023 parliamentary vote, even as inflation hovered near 10%. That sent the zloty into a tailspin and raised concerns over the central bank’s priorities.

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After Tusk’s pro-European coalition took power, however, the panel quickly changed tack and refused to reduce borrowing costs further even as inflation declined and regional peers in the Czech Republic and Hungary eased policy.

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Policymakers cited concern over wage growth and the uncertain longevity of government-controlled caps on energy prices. Critics accuse the governor of being reluctant to help the government ahead of the presidential election. 

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A victory for Tusk’s candidate — Warsaw Mayor Rafal Trzaskowski — would allow the parliamentary majority to more easily implement legislation and reverse contested changes to the country’s justice system, which have raised red flags in the European Union.