Poland should exercise caution before resuming interest-rate cuts, as the potential for wage increases could exert pressure on prices, according to the International Monetary Fund’s senior representative for Eastern Europe.

Wage pressures might lead companies to transfer higher labour costs to retail prices instead of absorbing them, Geoff Gottlieb of the IMF said in an interview in Warsaw. He added that this could “further delay” efforts to bring inflation back to target levels.

“We see grounds for caution before resuming an easing in monetary policy,” Gottlieb said.

These comments reflect the National Bank of Poland's hawkish position, which has faced growing criticism from economists advocating for a path toward monetary easing.

Citigroup Inc. and PKO Bank Polski SA have warned that not implementing rate cuts could negatively impact the European Union’s sixth-largest economy, Bloomberg reports.

Central bank governor Adam Glapinski stated last month that monetary easing is unlikely until 2026 due to concerns about price stability, a stance that has been challenged by other members of the Monetary Policy Council. 

Meanwhile, traders have increased their bets on monetary easing following weak US economic data, which led to a reassessment of the Federal Reserve's rate trajectory.

However, Gottlieb, who refrained from commenting on Glapinski's rate guidance, noted that risks remain in fully bringing inflation under control.

“While there are several factors, a primary concern is that wage growth remains exceptionally strong amid an accelerating economy,” Gottlieb stated.

Furthermore, the central bank has held the benchmark interest rate at 5.75% since October, despite inflation falling within the policymakers' target range of approximately 2.5% this year.

Gottlieb noted that Poland's inflation peak of 18.4% in February 2023 has “long passed,” highlighting the extensive range of costly measures that were accessible to citizens across various income levels.

Even so, the IMF has suggested Poland prepare policies “that can be activated quickly amid future shocks and that provide temporary relief only to the most vulnerable households,” Gottlieb added.