(Bloomberg) -- The International Monetary Fund said Poland may start gradual interest rate cuts in the middle of next year, but advised central bankers to keep monetary policy tight throughout 2025 because of significant inflation risks.
“Monetary policy should remain tight at least through 2025,” the IMF said in a statement following its first mission in Warsaw since the change of government after last year’s election. Rate cuts should commence “only when data and forecasts confirm that inflation is on a clear downward path toward the target.”
Poland’s central bank has kept rates unchanged at 5.75% since October 2023, but policymakers, including Governor Adam Glapinski, are starting to coalesce around the view that easing could start in the first or second quarter of next year — as long as inflation starts to ease toward the target.
The IMF warned that price growth is forecast to peak “significantly above the target” in the first half of 2025.
READ: Poland Must Exercise Monetary Caution as Risks Remain, IMF Says
The fund also said that Prime Minister Donald Tusk’s government should identify needed fiscal measures now and bring forward budget consolidation to 2025 to strengthen its credibility.
Heading into next year’s election, the administration wants to keep its budget shortfall above the European Union’s limit of 3% of economic output until 2028.
The government has no plans to cut spending, which has soared on the back of investment in the military and rising social benefits.
The IMF warned that “population aging, diminishing cost-competitiveness, and climate transition present significant challenges to Poland’s export-driven growth model.”
Without structural reforms, “medium-term growth is expected to decline,” IMF said. The fund expects Poland’s economic growth to slow to 3.4% in 2026 from 3.5% next year.
(Updates with more details from fifth paragraph.)
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