The President of the National Bank of Poland, Adam Glapinski, justified the decision to lower interest rates by 25 basis points in October on the basis of low inflation in September, noting that for the third consecutive month it remained close to the NBP's target (within the accepted range of deviations). In the Monetary Policy Council's view, the inflation outlook for the coming months has improved. The freeze on electricity prices has been extended to 4Q of 2025, and inflation is expected to hover around 3% until the end of the year.

Yesterday, the Council cut interest rates by 25bp at its third consecutive meeting. But today, the NBP president again emphasised that the MPC is pursuing a cautious stance on monetary policy and listed the main inflation risks in the medium term:

1. CPI and core inflation above the NBP target

The main inflation indicator continues to exceed 2.5% (the NBP's target), and core inflation remains above 3%. This means that in the event of an increase in energy or food prices, inflation could once again move clearly above the central bank's target.

2. Potential for a significant increase in energy carrier prices in 2027 due to the introduction of ETS2

Energy prices remain frozen until the end of 2025, but their unfreezing, given the current tariff levels, could boost inflation by 0.3–0.4 percentage points in 2026. Furthermore, in 2027, the extension of the European Emissions Trading System (ETS2) will come into effect, which will translate into higher heating and fuel costs. In Poland's case, estimates suggest this could push inflation up by around 2 percentage points, making Poland one of the EU countries most affected by the introduction of ETS2. The NBP president does not expect the EU to abandon this policy and is very critical of it.

3. Strong demand in the economy and growth in consumption

Economic growth is robust (it will be higher in 2025 than in 2024), and consumption is rising dynamically, which is a pro-inflationary factor.

4. Elevated wage growth

Wage growth has slowed, but remains higher than productivity growth, which may contribute to increased inflation.

5. Loose fiscal policy

The government is maintaining an expansionary economic policy, which limits the scope for rate cuts but does not close off the possibility entirely. Glapinski did not highlight the impact of fiscal policy on inflation. This affects prices in the medium to long term, but has a smaller effect on current inflation. The NBP noted, however, that the government is seeking to tighten its fiscal policy, looking for savings, and there are no significant initiatives to increase spending.

The key message of NBP President was that there is room for further interest rate cuts, and the Council makes decisions on a meeting-by-meeting basis. As seen after the September press conference, Glapinski avoided explicit forward guidance. He did, however, mention that the majority of Council members see room for cautious 25bp rate cuts.

An important factor in the decision next month will be the shape of the new inflation projection by NBP staff. Although it will show lower inflation in the fourth quarter of 2025, the NBP will most likely assume a rise in electricity prices from early 2026, even though the new tariffs will probably be lower than the current ones and similar to the frozen levels. The NBP president views the external environment as favourable for further disinflation, but trends in commodity markets result from weak global economic performance and stagnation in the European economy.

In our view, Glapinski's rhetoric during the conference left the door open for another interest rate cut in November. We estimate the probability of this to be well above 50%.

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