High energy prices postpone interest rate cuts in Poland

The Polish economy – like most European economies – is heavily dependent on the prices of energy raw materials. This is especially true for our region i.e. Central and Eastern Europe. Changes in the prices of energy raw materials are very important in the Polish energy mix – the typically brown or black ones, such as coal. According to analyses that the Polish Bank Association (ZBP) carried out as part of a research program, it turns out that in Poland, the inflation multiplier for coal prices is the highest among all Central and Eastern European countries. This means that if the prices of energy raw materials increase, especially coal, the inflation of energy prices in Poland will be relatively higher than in other countries. It implies that the process of disinflation – which is indeed ongoing but globally slower than expected – may slow down further.

“From the perspective of the banking sector, this means a potentially lower probability and less economic justification for a decrease in interest rates,” says Dr. Tomasz Pawlonka, Director of Research and Analysis at the Polish Bank Association, to the eNewsroom.pl service. “Most economists predict that the reference rate will not change this year, but it will decrease next year, however, it will still be above 5%. Only in the years 2026-2027 will the reference rate decrease and stabilize at around 3%. The analyses of the Polish Economic Institute show that a significant factor impacting inflation in the coming quarters – particularly in the second half of 2024 and 2025 – will be an increase in the prices of energy raw materials. It will significantly boost total inflation, a characteristic feature of, among others, the Polish economy. On the other hand, in the analysis of the National Polish Bank and the inflation forecast published last week, the impact of energy raw material prices is much smaller. From the perspective of the banking sector, with ongoing geopolitical disputes, which, according to the European Financial Congress, are one of the main factors affecting the stability of the banking sector, energy raw material prices could be a significant factor supporting and increasing inflation in the coming quarters. Hence, the economic justification for lowering interest rates in the foreseeable future seems distant,” predicts Dr. Tomasz Pawlonka.