Interest rates remain unchanged
Today, the Monetary Policy Council has taken a decision to keep the interest rates unchanged (with the NBP reference rate standing at 5.75%). The MPC’s decision was consistent with the market consensus and our forecast. In today’s press release, the Council repeated that “despite the observed economic recovery, demand and cost pressures in the Polish economy remain relatively low, which amidst weakened economic conditions and lower inflation pressure abroad curbs domestic inflation pressure.” In the Council’s opinion, inflationary pressure is strengthened by a marked rise in wages. According to the Council, inflation is being substantially driven up by growing energy prices and once the impact of this factor fades, inflation should converge to the inflation target. The Council also reiterated the uncertainty arising from the impact of higher energy prices on the inflation expectations, and maintained its opinion regarding the adequacy of the current level of interest rates, which “is conducive to meeting the NBP inflation target in the medium term.” The Council’s opinion regarding the future level of interest rates, which “will depend on incoming information regarding prospects for inflation and economic activity” has also been repeated in the press release.
Expectations of a continued rise in inflation rule out quick rate cuts
In our opinion, the wording of the press release published after the MPC meeting supports our scenario of interest rate stabilisation in the quarters to come. We expect the first rate cut to take place in Q3 2025. We maintain our assessment that in the months ahead, the short-term interest rate outlook will primarily depend on the scale of the anticipated rise in inflation and the question of when and at what level inflation will reach its local peak. In our opinion, the economic slowdown we expect in Q3 and Q4 will have a secondary impact on the MPC's bias. In accordance with our revised forecast, inflation will go beyond 5% in September 2024 and reach its local peak at 5.7% in March 2025 (see MACROmap of 02/09/2024). Such an inflation path will be conducive to a rise in inflation expectations, which, considering the wording of the press release issued following today’s meeting, will be a strong argument for the MPC to keep interest rates unchanged despite the expected return of inflation to the NBP target in 2026. A. Glapiński’s tomorrow’s press conference will probably tell us more about the outlook for the monetary policy.
In our opinion, the press release following today’s meeting of the Council will be neutral for the PLN and for the yields on bonds.
