Bigger deficit cuts this year could accelerate rate cuts in Poland, IMF says

WARSAW, Jan 21 (Reuters) – Front-loading some planned budget cuts to 2025 would create room for faster interest rate cuts in Poland, the IMF said in a report on Tuesday, adding the central bank’s current tight policy stance was appropriate given still-high core inflation.

The National Bank of Poland (NBP) kept rates unchanged last week, as expected, with Governor Adam Glapinski saying there was currently no room for monetary policy change with inflation on track to exceed the bank’s target at end-2025.

Consumer price inflation (CPI) eased to an annual 4.7% in December from 4.8% a month earlier, but was still above the bank’s target of 2.5% plus or minus one percentage point.

“There may be scope for limited and gradual policy rate cuts starting around mid-2025 if wages decelerate and there is a sustained decline in inflation towards the target,” the IMF report said, following a regular review of central Europe’s largest economy.

Rafal Trzaskowski, the presidential candidate of Poland’s main ruling coalition party Civic Coalition (KO), has openly called for Glapinski to lower rates, while other leading party members have suggested high rates were hurting the economy.

Glapinski has said the government’s loose fiscal stance, including big public sector wage hikes, also limited the scope for rate cuts.

The IMF sees Poland’s deficit-to-GDP (gross domestic product) ratio easing to 5.6% in 2025 from 5.9% in 2024 and decreasing further to 3.5% in 2029, still above the European Union’s 3% requirement.

Poland’s finance ministry said in October that it aimed to cut the deficit to 2.9% of GDP in 2028.

“Tightening (fiscal) policies in 2025 to rein in the high deficit would help disinflation and create monetary policy space to support private investment,” the IMF said.

“Over the medium-term, fiscal measures of around 1.5 percent of GDP additional to those already in-train should be implemented to help stabilize debt around 60 percent of GDP while ensuring adequate space for public investment.”

Poland’s finance ministry expects the debt-to-GDP ratio to peak at 61.3% in 2027 before falling below 60% in 2030.

According to IMF forecasts, Poland’s economy will grow by 3.5% in 2025, supported by an influx of European Union funds, with growth slowing to 3.3% and further in subsequent years, as the impact of the inflows unwinds.

It added there was substantial uncertainty, with risks tilted to the downside for growth and the upside for inflation. The IMF sees Poland’s CPI at 3.7% at end-2025 and 3.3% at end-2026.

Poland expects its economy to grow by nearly 4% in 2025. (Reporting by Karol Badohal Editing by Mark Potter)