At the conference, Glapiński discussed the prospect of rate cuts, highlighting that a drop in rates is conditional upon inflation easing. Although he did not entirely rule out the possibility of earlier cuts, he suggested that they were unlikely until the second quarter. His comments reflect a measured optimism but also a degree of uncertainty due to inflationary pressures that could be influenced by the Polish government’s ongoing decisions around energy pricing. If inflationary pressures diminish sooner than anticipated, the NBP could act ahead of schedule. However, the Governor emphasised that they will maintain a cautious approach, as future inflation rates are uncertain.
A significant element of this uncertainty stems from energy prices. Currently, Polish legislation mandates that energy prices, which have been capped for domestic users, will be unfrozen, which could push inflation upward. Yet, recent government discussions suggest that price freezes might continue, a decision that would likely keep inflation lower. These possible extensions on energy price caps are contributing to the central bank’s caution around rate cuts, as inflation remains a concern.
The NBP has refrained from reducing interest rates throughout this year, fearing that state interventions, particularly around energy prices, could disrupt inflation forecasts. Energy-related costs have been a primary driver of inflation in Poland, and any sudden changes could increase inflation expectations. Rising wages add another dimension to the inflation puzzle, as income growth has remained robust, giving Polish consumers more purchasing power, which, in turn, drives demand for goods and services. This scenario has allowed companies to increase prices to some extent. However, Glapiński noted that recent data hints at a slowing pace of wage growth, meaning wages may not contribute as strongly to inflation in the months to come. He did, however, caution that energy prices could still impact inflation expectations during the winter when household heating bills arrive.
While uncertainties remain, Glapiński’s remarks indicate he is cautiously prepared to support the first rate cuts in over a year, potentially providing relief to borrowers. Lower interest rates would reduce loan repayments, particularly for those with mortgages, potentially boosting household spending and improving affordability for those seeking new home loans. This change could encourage a wave of consumer spending, which would benefit the Polish economy overall by stimulating sectors such as retail and construction. Moreover, with lower borrowing costs, Polish businesses might find it easier to invest in growth, bolstering job creation and the overall economy. The governor emphasised that housing could be a particular beneficiary, as cheaper mortgages could provide a boost to demand in the sector, helping the market recover.
As Poland navigates its economic challenges, the timing of these rate cuts remains dependent on inflation and government policy decisions around energy pricing. The central bank is preparing for a more accommodative monetary policy environment, which could provide the flexibility needed to support economic growth in 2025. Borrowers and businesses alike are waiting to see if Poland’s economic landscape will stabilize and provide the conditions necessary for a rate cut, signalling a potential turning point for the country’s financial outlook next year.
Central European currencies hit by strengthening dollar as inflation remains high in Poland
Currencies in Central Europe faced a challenging week, with the Polish złoty, Czech koruna, and Hungarian forint all losing value against the euro and the dollar. In Poland, the dollar climbed by 10 groszy and the euro by 5 groszy, marking their highest rates since mid-August. Hungary's forint suffered the steepest drop, reaching its lowest level against the euro since March 2023.
This depreciation in Central European currencies was primarily driven by the strengthening US dollar, following comments by Federal Reserve Chair Jerome Powell. Powell said that the Fed would not rush to cut interest rates, which was further reinforced by robust US labour market data showing decreasing unemployment and a 4% annual wage growth – the fastest rate since May.
In contrast, Europe’s economic outlook is more subdued, with eurozone inflation dropping below 2%, fueling expectations that European central banks may reduce rates sooner than the US. This divergence in monetary policy stances is encouraging investors to favour the dollar, causing European currencies to weaken. Additionally, Hungary’s central bank recently announced support for green investment funding, which the markets interpreted as a potential signal of further monetary easing. Consequently, the euro has now crossed the 400-forint threshold in Budapest for the first time in over 18 months.
Poland’s inflation rate driven by statistical base effects
Poland continues to experience higher inflation than the eurozone, with the annual inflation rate rising from 4.3% to 4.9% in September, the highest this year. Essentially, inflationary pressure in Poland remains low, but the annual rate was affected by a statistical base effect.
Inflation is calculated on a 12-month basis, comparing current prices to the same month the previous year. This year’s September calculations omitted last September’s 0.4% drop in prices, which had previously moderated the inflation figure. Now, with this drop removed from the calculation, the annual inflation rate has increased. However, monthly price changes indicate stability: food prices rose by a modest 0.2%, energy prices also by 0.2%, and fuel prices fell by 3.4% from August.
Despite this statistical rise, analysts predict that annual inflation will likely hover around 5% through the year’s end.
Overall, as the dollar strengthens and European economic conditions diverge from those in the US, Central European currencies may face continued challenges. At the same time, Poland's inflation is forecast to remain relatively steady, though elevated, as the year progresses.
Oil-price surge puts the pressure on inflation
A surge in global oil prices, with Brent crude jumping 10% in the past week, has exacerbated inflation concerns in Central Europe. This rise follows increased tensions between Israel and Iran, with market fears that Iranian oil supply could be impacted by potential sanctions due to the conflict. The climbing oil prices, along with a weaker złoty and a more expensive dollar, are likely to end the recent downward trend in fuel prices at Polish petrol stations.
Fuel prices in Poland reached their lowest level since February 2022 last week, averaging 5.93 złoty (€1.28) per litre for diesel and slightly less for 95-octane petrol. However, wholesale prices have already begun to rise, with Orlen’s wholesale diesel prices jumping by 0.20 złoty per litre and petrol increasing by 0.11 złoty. Given these trends, it’s anticipated that fuel prices at the pump may start to rise soon.
Poland's wage data highlights growing income inequality
The Central Statistical Office (GUS) recently reported that the median wage in Poland was 6,500 złoty (€1,400) gross in April, 21.9% lower than the average wage for the same period. This reflects a wage distribution that is skewed by high earners, with most Polish workers earning less than the average.
The median wage offers a more accurate reflection of the earnings of the typical Polish worker compared to the average wage, which is often elevated by top earners. Encouragingly, both median and average wages in Poland have been increasing, with August's average wage 11% higher than the previous year, resulting in a real increase of over 6% when adjusted for inflation.
Żabka's IPO: Central Europe’s biggest capital market event Since 2020s
The much-anticipated IPO of Żabka, Poland’s largest convenience store chain, is generating significant buzz as potentially the largest capital market event in Central Europe since Allegro’s 2020 debut. According to Bloomberg, investors rushed to subscribe for all the available shares within just minutes on the first day, indicating likely reductions in share allocations by the time subscriptions close on October 9. The stock is set to debut on around 17 October, with an initial share price of 21.5 złoty (€4.63), valuing the company at 21.5 billion złoty (€4.63 billion). With 300 million shares available, the offering is valued at over 6 billion złoty (€1.3 billion), making it the fourth largest IPO in Europe this year.
Żabka plans to double its sales over the next five years and does not intend to pay dividends during this period, reinvesting all profits into expansion. With ambitions to grow from 10,500 to 19,500 stores in Poland, the company claims that its outlets avoid “cannibalising” each other, even when they are located just 500 metres apart. However, potential investors should be aware of the inherent risks, as stock market investments always carry the possibility of losses.
Poles boost foreign investments amidst declining inflows into Poland
Polish investments abroad saw a significant rise in 2023, increasing by 22.7% to reach 35.2 złoty billion (€7.6 billion), according to recent data from the National Bank of Poland. This amount is divided into three main categories: acquisitions of foreign shares and stakes, which amounted to 13.6 billion złoty (€2.9 billion); investments in foreign debt instruments, totaling 11 billion złoty (€2.4 billion); and reinvested earnings of 10.5 billion złoty (€2.3 billion). These reinvested profits come from overseas companies controlled by Polish entities that choose to reinvest locally rather than repatriate profits to Poland.
The largest transactions by Polish entities were concentrated in countries like the Czech Republic (4.2 billion złoty), Norway (4.1 billion złoty ), Romania (3.8 billion złoty), Sweden (3.4 billion złoty ), and Luxembourg (2.2 billion złoty). These investments were predominantly in wholesale and retail trade (10.9 billion złoty) as well as manufacturing (8.7 billion złoty).
However, foreign direct investment (FDI) in Poland still surpasses Polish outbound investments. Net inflows of FDI into Poland reached approximately 120 billion złoty (€26 billion) last year, although this represented a 24% drop compared to the previous year. This total includes reinvested earnings of 72.5 złoty billion (€15.6 billion), equity inflows of 59.2 billion złoty (€12.7 billion), and an outflow of 11.9 billion złoty (€2.6 billion) from debt instruments.
These figures reflect Poland’s growing role as an active investor abroad while also highlighting a noticeable decline in foreign investments flowing into the country. The trend indicates a more balanced approach to international investment, as Poland strengthens its global economic footprint amidst changing FDI dynamics within its own borders.
