Poland’s Monetary Council (RPP) surprised the market this week by cutting interest rates by as much as 0.5 percent. The move pushed the country’s interest rate to a historic low of 2 percent. Market analysts had been anticipating just a 0.25-percent cut. At the same time, the reference rate was dropped to 3.25 percent, while the lombard rate was cut to 4.75 percent. The deposit rate was reduced to 1.75 percent, and the rediscount rate was pushed to 3.50 percent.
Some market watchers warn that the cuts could hurt Poland’s banking sector, as PRP also reduced the upper lending limit to 12 percent from 16 percent. “The move will indeed lower banks lending rates, but it should have no negative impact on their lending activity,” said Przemysław Kwiecień of X-Trade Brokers. He adds, however, that the profitability of the sector will fall, as Polish banks see their margins drop over the next two to three quarters. “Considering that RPP is expected to introduce further cuts in November, the sector will rebound not earlier than in the second half of 2015,” Kwiecień said.
