The announcements of a VAT increase on fuels did not affect the MPC's decision

The MPC did not make it at the second consecutive meeting interest rate increases. And this is when inflation continues to increase - in October it amounted to 17,9%. And also when the government more and more clearly indicates that the VAT reduction on fuel will be withdrawn from the new one, which will increase the price by about PLN 1 per liter. And that could boost inflation well above 20%.

The Sopot Treaty maintained

From October 2021 to September this year, RPP raised interest rates 11 times: from 0,5 pp. up to 6,75 pp. There was no raise in October, which was supposed to be a symbolic end to the cycle. Also this month, the Monetary Policy Council did not make another hike. However, inflation has not stopped rising, which increases the pressure on the MPC. In October it amounted to 17,9%, and in the coming months it will probably exceed 20%. It may also be even worse, because - according to unofficial information - from the new year, VAT on fuels is to return to the level of 23%. (from February 2022 it is 8%). Such a move will increase the price of a liter of gasoline and diesel by about PLN 1. It will also be another strong pro-inflation impulse causing price increases in many industries. In such a situation, inflation at the beginning of the year may significantly exceed even 20%. Therefore, we may face a scenario similar to that in Hungary, where inflation in October was 21,1%.

Analysts' opinions before today's decision were divided. Some predicted that the rate hike would not take place, others that there could be a “symbolic” hike of 0,25 pp in the face of the current situation. Ultimately, the MPC did not raise interest rates, based on the November inflation projection by analysts NBP. It assumes that next year there will be a significant economic slowdown, which will trigger a spontaneous drop in inflation. And the effects of the current rate hikes, if they happened, would be felt for the economy only in 6-9 months. Whether these assumptions and decisions were correct - we will find out in a few months.

The gap between rates and inflation continues to grow

Therefore, the Council sticks to its assumptions and does not raise interest rates, which pleases borrowers with loans with variable interest rates. The holders of bank deposits are less happy, because the difference between the level of interest rates (6,75%) and inflation (17,9%) is constantly growing and increasing their losses. On the example of an average annual bank deposit, established at the beginning of November 2021 and completed in October 2022, the real loss of its holder was as much as 14,5%.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.