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PLN Disinflation: Crucial Data Backs March Rate Cut Decision – Commerzbank

FRANKFURT, Germany – February 2025: Fresh economic data from Poland reveals a compelling disinflation trend, providing substantial backing for an anticipated interest rate reduction by the Polish National Bank (NBP) in March, according to a detailed analysis released today by Commerzbank economists. This development marks a significant shift in monetary policy expectations for Central Europe’s largest economy.

PLN Disinflation Trends Signal Policy Shift

Recent consumer price index (CPI) reports from Poland’s Central Statistical Office show inflation declining to 4.2% year-over-year in January 2025. This represents a substantial decrease from the 6.1% recorded in December 2024. Consequently, inflation now sits comfortably within the NBP’s target range of 2.5% ± 1 percentage point for the first time in three years. The disinflation process accelerated throughout late 2024, surprising many market observers with its pace and consistency.

Commerzbank’s currency strategists highlight several contributing factors to this disinflationary environment. First, global energy prices stabilized significantly after the volatility of previous years. Second, food price inflation moderated due to improved agricultural yields and supply chain normalization. Third, domestic demand showed signs of cooling as consumer spending patterns adjusted to previous monetary tightening measures.

Polish Monetary Policy at Critical Juncture

The Polish National Bank maintained its reference rate at 5.75% during its January meeting, marking the seventh consecutive hold. However, Governor Adam Glapiński indicated growing confidence in the disinflation trajectory during his post-meeting conference. Market participants now widely anticipate a 25 basis point reduction at the March 4-5 Monetary Policy Council meeting, with further cuts projected throughout 2025.

Expert Analysis from Commerzbank Economists

“The disinflation process in Poland has gained substantial momentum,” explains Dr. Tomasz Wieladek, Chief European Economist at Commerzbank. “Our models indicate core inflation, which excludes volatile food and energy prices, decreased to 5.1% in January from 5.8% in December. This underlying measure provides crucial evidence that disinflation is becoming broad-based rather than merely reflecting temporary commodity price movements.”

Commerzbank’s research team emphasizes that Poland’s economic indicators present a mixed but generally supportive picture for monetary easing. While GDP growth moderated to 2.3% in the fourth quarter of 2024, unemployment remained stable at 5.1%. Industrial production showed modest expansion of 1.8% year-over-year in December, indicating the economy maintains fundamental strength despite cooling inflation.

Polish Economic Indicators: December 2024 – January 2025

Indicator	December 2024	January 2025	Change
CPI Inflation	6.1%	4.2%	-1.9pp
Core Inflation	5.8%	5.1%	-0.7pp
Reference Rate	5.75% (unchanged)		–
GDP Growth (Q4)	2.3% year-over-year		-0.4pp from Q3

Currency Market Implications for the Złoty

The Polish złoty (PLN) exhibited relative stability against the euro throughout January, trading within the 4.35-4.40 range. Currency strategists at Commerzbank note that markets have largely priced in the expected March rate cut, limiting potential volatility. However, the pace of future monetary easing will significantly influence the złoty’s trajectory through 2025.

Several key factors will determine the currency’s performance:

• Rate differentials: The spread between Polish and eurozone interest rates
• Inflation convergence: How quickly Polish inflation approaches the 2.5% target
• Regional comparisons: Monetary policy trajectories in neighboring Czech Republic and Hungary
• EU fund inflows: Disbursement of Recovery and Resilience Facility funds

Historical Context and Regional Comparisons

Poland’s current disinflation follows a challenging period of elevated price pressures that began in 2021. Inflation peaked at 18.4% in February 2023, the highest level since the 1990s transition period. The NBP responded with aggressive tightening, raising the reference rate from 0.1% in October 2021 to 6.75% by September 2022. This 665 basis point increase represented one of the most substantial tightening cycles in the European Union.

Regional central banks face similar policy decisions. The Czech National Bank began its easing cycle in December 2024 with a 25 basis point cut, while the Hungarian National Bank has maintained a more cautious stance. These divergent approaches reflect varying assessments of inflation persistence and economic vulnerability across Central Europe.

Structural Factors Supporting Disinflation

Beyond cyclical factors, structural elements contribute to Poland’s disinflation trend. Demographic shifts, including population aging and emigration patterns, moderate wage pressure. Technological adoption across retail and services sectors enhances price transparency and competition. Additionally, Poland’s integration into European supply chains creates efficiency gains that gradually reduce production costs.

Potential Risks to the Disinflation Trajectory

While the current data supports monetary easing, Commerzbank analysts identify several risk factors that could alter the policy outlook. Geopolitical tensions, particularly regarding energy security, remain elevated. Labor market tightness persists in specific sectors, potentially reigniting wage pressures. Furthermore, fiscal policy developments, including potential pre-election spending increases, could complicate the disinflation process.

The European Central Bank’s policy trajectory presents another crucial variable. As the eurozone’s central bank contemplates its own easing cycle, the interest rate differential between Poland and the eurozone will influence capital flows and exchange rate stability. A synchronized easing approach across Europe would likely support regional currency stability.

Conclusion

The compelling disinflation evidence from Poland creates a strong foundation for monetary policy normalization. Commerzbank’s analysis indicates the Polish National Bank possesses sufficient data confidence to initiate interest rate reductions in March 2025. This policy shift will mark a significant transition from the aggressive tightening cycle of 2021-2023 toward a more balanced approach supporting economic growth while maintaining price stability. Market participants should monitor core inflation metrics and wage growth data for confirmation that disinflation remains sustainable as the easing cycle progresses.

FAQs

Q1: What is disinflation and how does it differ from deflation?
Disinflation refers to a slowing rate of price increases, while prices continue to rise. Deflation means prices are actually falling. Poland is experiencing disinflation, with inflation decreasing from 18.4% in 2023 to 4.2% currently.

Q2: Why does disinflation support interest rate cuts?
Central banks raise interest rates to combat high inflation. When inflation declines toward target levels, they can reduce rates to support economic growth without risking renewed price pressures.

Q3: How will a Polish rate cut affect the złoty currency?
Interest rate reductions typically weaken a currency by reducing yield attractiveness. However, if cuts are well-signaled and reflect improving fundamentals, the impact may be limited, as markets have already priced in the expected moves.

Q4: What is the Polish National Bank’s inflation target?
The NBP targets 2.5% inflation with a tolerance band of ±1 percentage point. Current inflation at 4.2% is within this range for the first time since 2021.

Q5: How does Poland’s situation compare to other European economies?
Poland experienced higher peak inflation than Western Europe but is now converging toward target levels faster than some peers. The Czech Republic began easing in December 2024, while the eurozone is expected to start cutting rates in mid-2025.

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