Interest Rate Adjustment
The reference rate was cut from 5.75% to 5.25% and all other rates by 50 basis points. Besides the key rate, the rediscount rate was cut to 5.3% from 5.8%, the discount rate to 5.35% from 5.85%, the Lombard rate to 6.25% from 6.75% and the deposit rate to 4.75% from 5.25%.

Inflation Expectations and Prospects for the Future
This rate decrease comes after weeks of sky-rocketing inflation in Poland. The central bank has been raising rates since late 2021 to keep a lid on inflation, which hit 17.9% in October 2022. Interest rates had climbed to 6.75% by August 2023. But inflation has since dropped, and the latest year-on-year inflation data for April was at 4.2%.

Governor's Remarks
In March, Adam Glapiński, the governor of the National Bank of Poland, had said that the market consensus was “premature” in predicting more than one rate cut in May, June or July if it becomes clear that inflation is under control. While warning the bank could opt to make a single rate cut only, he said in an upbeat scenario there could be two 50-basis-point reductions this year.

Looking Ahead
The central bank’s guess on the level of inflation in future years is even lower, as it expects inflation to fall to 2.5% by 2027. While upbeat about the country's economic prospects, the bank is wary of risks and said it will keep a close eye on the economy.

The decision is a milestone in Poland's economic policy in which the central bank has been trying to clamp down on inflation while not choking off economic growth.

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