The Monetary Policy Council will not change interest rates

The Monetary Policy Council will decide on the interest rates for the last time this year and no change is expected.

Thanks to the suspension of reductions, the zloty gained additional wind in its sails, thanks to which it was one of the strongest currencies in the world in November and it still remains among the top currencies from the perspective of the whole year. Although at the moment we are seeing a stronger dollar, which is hurting the zloty, the end of the year can still be very good.

The impact of oil prices will be moderate

In November, the Monetary Policy Council "surprised" the markets and decided to keep interest rates unchanged. However, this was not a surprise from the perspective of the hypothesis of the Italian economist Alberto Alesina, who showed that before the elections in the country we observe a dovish turn on the part of the central bank, and immediately after the elections a shift to the hawkish camp. This is exactly what happened in Poland - a 100 basis point cut in two decisions before the October elections, and then keeping interest rates unchanged, although still at a very high level. Quoting the latest statements of central bankers from Poland, including the boss NBP, prof. Glapiński, a longer period of interest rates can be expected.

Another important date when reductions could be resumed is March. Then we will receive the next inflation report, which will show whether inflation continues to move towards the target at the same pace or whether the trend has been disrupted. It is worth mentioning that recent reports about inflation showed approximately 50% probability of achieving the goal by the end of 2025! Considering the current inflation of 6,5% and the fact that it was still 18,4% in February, the target of 2,5% does not seem far away. However, you must remember that a significant drop in inflation came from the base effect itself, which at this point will no longer work in favor of a further strong decline. Moreover, just before the elections we were the beneficiaries of very low fuel prices, which at that point added a lot to the inflation in November. On the other hand, oil prices have fallen quite significantly, so it cannot be ruled out that the impact of oil and fuels will be moderate for the next few months.

MPC in "wait and see" mode

The latest Central Statistical Office survey on household forecasts showed that an increasingly smaller group of Polish consumers expects higher inflation. Currently, even 40% of respondents indicate that price growth will slow down, and approximately 20% believe that prices will stop rising. This is a big change compared to what we saw in 2022. On the other hand, consumer optimism may turn into demand-side inflation, especially since wages are growing almost twice as fast as inflation. It is this factor that indicates that the Monetary Policy Council should remain in a "wait and see" mode in the coming months and return to cutting rates if inflation falls faster than expected and major central banks such as the Fed and the ECB also decide to cut rates. discounts. However, this will happen at the earliest in the second quarter of next year.

The last 4 decisions took place after 15 p.m., but decision time was definitely speeding up, so it cannot be ruled out that in December the hours will be 14-15 p.m. It certainly shouldn't be 17:55 p.m. as it was in December 2022. Today, before 10:00 a.m. we pay PLN 4,01 for the dollar, PLN 4,32 for the euro, PLN 4,58 for the franc and PLN 5,05 for the pound.

Source: Michał Stajniak CFA, XTB