Today the Monetary Policy Council will lower interest rates

The market overwhelmingly expects the Monetary Policy Council to cut the reference rate by 25 basis points today. The preliminary inflation reading for August has shifted short-term expectations toward a more easing policy, reversing the earlier scenario of a pause after the July reduction. The decision itself should therefore come as no surprise. However, Adam Glapiński's speech at Thursday's press conference will be crucial, as it will set the horizon and pace for any further cuts..

It is worth noting that the inflation picture has improved recently. CPI index decreased to 2,8% (from 3,1% y/y previously) and on a month-on-month basis we recorded negative dynamics of 0,1% in August. An additional factor in favour of easing monetary conditions is the gradually cooling labour market.Statements by Monetary Policy Council (MPC) representatives clearly signal a readiness to act: Henryk Wnorowski indicated a "minimal" cut in September, Ludwik Kotecki spoke of a "clear scope" for a quarter-point reduction, and Iwona Duda estimated that the total scale of cuts this year could reach 100 basis points. Chairman Adam Glapiński cautioned in July that the decision at the time did not open a cycle, but he would likely support today's cut and maintain a cautious tone of communication.

In the foreign exchange market, the złoty remains under pressure and relatively weakest in the CE3 basket, with the source of this weakness primarily stemming from the worsening political environment rather than the actual rate cuts. How the market interprets today's decision—as a one-off adjustment or the prelude to a longer cycle—will depend on the message conveyed about the sustainability of disinflation and the conditions for potential further easing. This will also determine the yield curve's reaction and the direction of the złoty in the coming weeks.

Source: OANDA TMS Brokers