Inflation in the first months of 2025 can be high due to the base effect. And the space for interest rate cuts will not appear in March but only in the second half of 2025.
Nobody expects interest rates to be cut anytime soon, especially during a period of elevated inflation. However, it is worth examining the statement from the Monetary Policy Council (RPP), after its October meetings, which did not show much concern about the increased inflation, which suggests no change in attitude. This in turn creates opportunities for the consideration of cuts to start next March.
According to preliminary estimates, the CPI inflation for September increased to 4.9% YoY, which is the highest level this year. The RPP, however, emphasizes that it is elevated due to the administered increase in energy prices and a small increase in food prices. The high inflation rate was not a surprise, due to the so-called base effect and the previous artificial decrease in energy prices.
The RPP indicates that the main issue for inflation is still the very high growth dynamic of wages. Although it is slowing down, the growth rate is still in double digits. When inflation stayed close to the target between 2017-2019, the wage growth rate averaged around 7%. At present, it stands just above 11%. The RPP expects that after the effect of energy price increases subsides, inflation should return around the inflation target. This provides opportunities for interest rate cuts next year. A few weeks ago some RPP members suggested discussions on cuts could start in March of next year. The current projection points to the peak of inflation slightly above 6% in the first quarter of next year. If the latest forecast shows better expectations, March would be the first possible time for a cut, although it seems very optimistic at this stage.
“There is no room for interest rate cuts this year,” says Michał Stajniak, Deputy Director of Analysis at XTB, in a conversation with MarketNews24. “This room may appear only next year, as signaled by the market.”
The market has priced in a 100 basis point cut over the next 12 months, and a 200 basis point cut over the next 24 months, simultaneously ending the cycle of cuts. This would put the target interest rate at 3.5-3.7%. However, as the RPP indicates, decisions will depend on the economic situation and inflation expectations. Current inflation is lower than initially expected, which is related to low oil prices. However, it remains elevated due to the tense situation in the Middle East. If Israel decides to escalate the situation with Iran, there is a chance for much higher oil prices by the end of this year, though a return to Brent crude level of 90 USD per barrel is unlikely.
“It may turn out that room for cuts will appear not in March, but in the second half of 2025,” comments an XTB expert. “Inflation in the first months of 2025 can be high, due to the base effect. There were even fears that it would reach 6% in February, now the fears are less, but such an effect of energy price increases can not be ruled out.”
So we remain a country with still high inflation, which even exceeded 18% in February of this year, and high interest rates, and loans remain expensive.
Source: https://managerplus.pl/inflacja-w-polsce-wciaz-wysoka-a-przestrzen-do-obnizek-stop-procentowych-dopiero-w-drugiej-polowie-2025-r-87955
