Economic news

• MONETARY POLICY: By mid-2025, there is room for a 50 bp rate cut, in one or two steps, depending on the data, and by a total of 100 bp throughout the year, said the MPC member Przemysław Litwiniuk. He added that there are differences of opinion within the Council regarding the scale of the first rate cut. In his opinion, there were grounds for a rate cut in April, but the markets were unprepared for it, which was the main obstacle to making such a move. Later in the year, Litwiniuk sees another 50 bp rate cut around November. Another MPC member Ludwik Kotecki also spoke out. In his opinion, in May, the MPC will not discuss whether to cut interest rates, the discussion will rather concern how much to cut rates and whether this is the beginning of a cycle or a one-off move. Kotecki believes that rates could fall by 100 bp by the end of the year. In addition, MPC member Joanna Tyrowicz said that any interest rate cut today would harm the Polish economy. In her opinion, if wage growth have indeed slowed down, then perhaps from now on the 5.75% rate will be enough to bring inflation back to the target. Joanna Tyrowicz assessed that the March inflation projection does not provide any room for interest rate cuts. In her opinion, starting cuts would mean giving up the Council's mandate in the current circumstances, as a 100 bp cut adds 0.7 percentage points to inflation over a two-year horizon. In our opinion however, in May and June we will see cuts of 50 bp each; there is also potential for an additional cut in the second half of 2025. 
• TRADE: The current account deficit in Poland amounted to EUR 220 million in February, the NBP reported. The reading was better than the consensus forecast (EUR -400 million). The trade balance was traditionally negative (EUR -0.9 billion), as was the balance of primary income (EUR -2.4 billion) and secondary income (PLN -0.4 billion), but they were almost entirely compensated by trade in services (PLN 3.5 billion). The source of the positive surprise was primarily the rapid slowdown in imports (from +8.9% yoy in January to +2.3% in February), accompanied by a decline in exports (-1.4% yoy in February) - trade in industrial goods is weakening in particular. On the other hand, trade in food, including processed food, is growing.

Tariff war will reduce inflation in Poland for a short time 

The new US trade policy, which is quickly turnned into a tariff war, is currently on everyone’s lips and its repercussions are the center of economists’ attention. Prime Minister Donald Tusk recently said that according to a preliminary assessment, the new US tariffs could reduce Polish GDP by 0.4%. It must be noted that at this stage this is a very rough estimate based on many assumptions with great uncertainty about the further actions of the participants in the tariff war. The same applies to the impact on inflation. However, in the short term, we emphasize in the short term, certain effects can already be observed and what is more - they are disinflationary. Through the channel of uncertainty and fears about a slowdown in global economic growth, since "Liberation Day" the prices of raw materials, mainly energy ones, have been falling sharply. 

Market prices of selected industrial raw materials (early 2025 = 100) 

Source: Refinitiv, Pekao Research 

The most tangible example is the oil market, where prices have fallen to levels not seen in four years, since the world had been recovering from the COVID-19 pandemic. Today, Brent crude futures are above $60 per barrel. Since “Liberation Day,” the price of a barrel has fallen by almost 15%. The price of copper has decreased to a similar extent. The market price of gas has fallen by almost 10% since then. Assuming that the price of oil stays around $60-65 for longer, according to our estimates, over the next 1-2 months (not immediately, because gas stations react with a delay to changes in oil prices, as they have fuel stocks purchased at higher prices), this will translate into a reduction in fuel prices at gas stations by about 7%. The price of gasoline or diesel will approach PLN 5.60-5.70 per liter. This in itself will reduce inflation by as much as 0.35 percentage points. Given the recent dovish turn of the MPC, this could be another factor encouraging the Council to cut interest rates more at upcoming meetings. We see a 50bp rate cut in May and June each. 

Financial market update

Wednesday's de-escalation of trade wars by the US helped Polish bonds, which are rising in value under the influence of a dovish turn in the MPC. We expect this process to continue this week. However, the respite for the złoty was short-lived and at the end of last week EURPLN tested 4.30 again. The global flight from risk has most likely permanently weakened the Polish currency, so in the coming week we expect the aforementioned level on the EURPLN to be tested again, with its probable breakout and movement towards 4.32. The final reading of CPI inflation and core inflation (Tuesday/Wednesday) could be an excuse for this, as it might confirm the large scope for NBP to cut interest rates. Global events, mainly on the US-China line, will be of key importance.