This is the second cut of the year after a 50-basis point reduction in May — the first in a year and a half. The bank's Monetary Policy Council went ahead with the move despite having signalled a more cautious or "hawkish" approach to monetary policy.

Economic Conditions Support Easing
Economists also say that the central bank's decision is appropriate given the state of the economy. "Even though the market was expecting a cut in September... it seems conditions now favour monetary policy ease," noted Bank Pekao's experts. They cited the bank's July forecasts and falling inflation as the main reasons for the decision.

They did a similar thing and called the versioning surprising, though reasonable. They noted that inflation is likely approaching the 2.5% target for July, consistent with the bank's objectives. ING also forecast that further rate cuts could come after the summer, depending on the trajectory of inflation.

The move by the central bank indicates the pendulum swinging toward easing, with stronger macro readings and a less threatening inflation tool. Nevertheless, the surprise has triggered a broad-based market response and re-pricing of expectations for future policy changes.