Poland's falling inflation is likely to prompt the central bank to engage in further monetary loosening in the coming months, Capital Economics Emerging Markets Economist William Jackson said Tuesday.

Capital Economics forecasts that Poland's central bank will likely lower its key interest rate by 25 basis points to 3 percent later this year, which is most likely to happen in July, following the publication of the bank's next inflation report.

However, the rate cut is unlikely to mark the beginning of a protracted easing cycle as the recent recovery in the economy could cause core inflation to pick up. Also, the government has recently indicated that the VAT cut planned for early next year is now unlikely to be implemented, the firm said.

In such a scenario, the headline inflation could return towards the Bank's 2.5 percent target in 2014, and interest rates are likely to remain low for a long period, irrespective of whether policy is eased further or not.

Latest data showed that Poland's inflation slowed to a near seven-year low of 1 percent in March from 1.3 percent in February.

While inflation in the Central Europe in general has eased mainly due to the the weakness of domestic demand, in Poland and Hungary, inflation pressured stayed weak mainly due to a drop in energy inflation.

Among other major economies in the the Central Europe, where price pressures have been extremely subdued, Hungary's headline inflation fell to a record low of 2.2 percent in March, while Czech inflation stayed unchanged at 1.7 percent.

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