Poland will not see interest rate cuts in January says expert
Poland’s central bank’s rate setting Monetary Policy Council (MPC) will not cut its basic interest rates during a sitting starting Monday, an economist told PAP.
The Monetary Policy Council, responsible for deciding on interest rates, will start its two-day sitting on Monday.
Last year the MPC lowered rates twice, in September and October. The changes added up to a whole 1 percentage point decrease, bringing the central bank (NBP)'s reference rate down to 5.75 percent.
In the opinion of Kamil Luczkowski, an economist at Pekao Bank, the council will not make a rate cut during this week's sitting.
"After the surprisingly low December inflation reading, we are not changing our expectations for the MPC's decision at its January meeting," he said. "We think that interest rates will remain at the current level."
"However, the lower than expected inflation readings will raise doubts about maintaining the current rate level among council members and encourage them to lower them," he added.
On Friday, Poland's Central Statistical Office (GUS) said in a flash estimate that CPI inflation in December was 6.1 percent year on year, against expectations of 6.5 percent.
In November, the CPI was at 6.6 percent year on year, and has been steadily declining since reaching the level of 18.4 percent in February 2023.
Marta Kightley, the deputy president at the NBP, also said during a sitting of the parliamentary public finance committee in December that "in the first months of the year the inflation rate might be lower than was predicted in the NBP's forecasts."
Pekao's Luczkowski said inflation would continue to decline in the near term.
"We also predict further pronounced disinflation at least until the end of the first quarter," he said. "We think that inflation will fall to as low as 3 percent in March, that is within the band of acceptable fluctuations from the inflation target (2.5 percent +/- 1 percentage point - PAP).
"However, where inflation goes from there will strongly depend on regulated factors, specifically the issue of maintaining 0 percent VAT on food and the further freezing of energy prices."
The reduced VAT tax on food is, according to current legislation, supposed to last until the end of the first quarter of 2024, while the freeze on energy, heat and gas prices is to last until the end of June 2024.
"A potential decline in inflation within the bounds of acceptable deviation from the target will be temporary and related to non-base factors, so the RPP should not react," he went on to say.
"In addition, given the expected rebound in inflation in the second half of the year with a softer fiscal policy, the council in our view will keep interest rates high for longer - for at least the whole of 2024," he added. "Of course, with further lower than expected inflation readings, the chances of faster rate cuts increase." (PAP)
mj/md/ej
