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Inflation Concerns Outweigh Relief Calls: No Rate Cuts in February

ECONOMYInflation Concerns Outweigh Relief Calls: No Rate Cuts in February

Economists agree that there will be no significant cuts to interest rates in February 2024. This implies that consumer and mortgage loan repayments are unlikely to change noticeably.

Economists from the Polish Economic Institute predict that there will be a temporary dip in inflation to 3.5% in March during Q1 2024. This consumer price index (CPI) will be closely aligned with NBP’s upper target limit. However, this decrease will be short-lived. There will be no grounds for significantly cutting interest rates because administrative decisions to phase out anti-inflation shields, like possible VAT increases for food items and partial unfreezing of energy prices, will lead to another rise in CPI inflation by approximately two percentage points. Analysts’ forecasts estimate an average inflation rate of 5% throughout the year and a GDP growth of approximately 3% in Poland, which doesn’t provide an ideal scenario for drastic cuts to interest rates.

Recent statements from the NBP President indicate that very much the same inflation changes are anticipated by the Monetary Policy Council (RPP), and these won’t lead to automatic interest rate cuts. Therefore, according to economists, until March, the RPP will maintain interest rates (with the major one being at 5.75%).

The market values drops to be around 100 basis points over the course of 2024, with the first expected move in March. However, ING BSK economists’ base scenario assumes a 25-50 basis points dip in May.

There seems to be minimal risk of interest rate increases, since the RPP initiated a cycle of cuts in autumn 2023. A scenario in which it decides on an increase soon after would suggest a misjudgment in monetary policy and a failure to accurately identify economic trends.

By Karolina Jurek

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