The Monetary Policy Council cuts rates again: borrowers gain, inflation falls

After inflation fell to 2,8% in October, compared to earlier forecasts NBP assuming a possible return to above 3 percent and a significant reduction in core inflation, the decision RPP Another interest rate cut is no surprise. The National Bank of Poland (NBP) reference rate currently stands at 4,25%, still significantly above inflation, paving the way for further cuts. Lower interest rates translate directly into loan servicing costs, meaning that mortgage payments in Polish zloty are currently falling by PLN 12 to PLN 18 for every PLN 100 of debt, bringing real relief to a growing number of borrowers.

CPI surprises, forecasts miss

The Monetary Policy Council (MPC) decided today to cut interest rates by another 25 basis points. The base rate currently stands at 4,25%. This decision is not surprising, as after October's decline in inflation to 2,8% (from 2,9% in August and September), the path to further rate cuts was wide open. This is especially true given that just a few months ago, the National Bank of Poland (NBP) assumed that inflation could once again exceed 3% in the second half of the year, primarily due to higher energy and service costs, and a possible rebound in food prices. Meanwhile, we are another step closer to achieving the NBP's inflation target of 2,5%.

The October CPI inflation reading was lower than economists expected, predicting flat inflation. Month-on-month, prices rose by just 0,1%, clearly demonstrating that price pressures have weakened in the short term. Food prices remained unchanged in October compared to September. Year-on-year, food and non-alcoholic beverage prices are 3,4% higher, which is higher than the overall inflation rate, but less than the previous month's increase of 4,2%. Energy prices rose by 2,6% year-on-year, compared to 2,4% the previous month. Fuel and gasoline prices rose by 1% in October, demonstrating that despite some increase in energy commodity prices, their impact on inflation is limited and inflation is continuing to decline, rather than rising.

Core inflation at multi-year lows

Core inflation, a measure the Monetary Policy Council pays particular attention to, also fell to its lowest level since November 2019, likely reaching 3% (compared to 3,2% in September). Core inflation is a price index that excludes the most volatile components, primarily food and energy, and better reflects sustained inflationary trends in the economy.

The most important argument against further interest rate cuts, however, remains the government's continued lax fiscal policy. The draft budget for 2026 projects a high deficit of 6,5% of GDP, only a slight decrease from around 7% in 2025. This signals that the fiscal stimulus will continue to support economic growth and, therefore, may hinder further reductions in inflation.

Investor sentiment: inflation is no longer the biggest threat

The Monetary Policy Council (MPC) appears to be acting in line with the sentiment of Polish investors, who also assess that inflation risk is clearly decreasing. According to the latest survey eToro The Individual Investor Pulse survey shows that inflation, after many quarters of dominance, has fallen to second place among investors' greatest concerns. The risk of international conflict took first place, cited by 25% of respondents. Inflation is feared by 22% of respondents, and recession in Poland and globally by 12% each.

Relief for borrowers, weaker prospects for savers

The interest rate cut is encouraging for mortgage loan holders, as it means lower installments by approximately PLN 12-18 per PLN 100. It's worth remembering, however, that this doesn't apply to those who opted for fixed-rate loans. In their case, the interest rate change will only occur after the fixed-rate period ends, usually after five years. The interest rate cut may also apply to other variable-rate loan products, such as cash loans and credit cards. On the other hand, it also means that holders of bank deposits and term deposits will have to reckon with lower interest rates.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.