The interest rate futures market is pointing to two or three rate hikes this year and to the forward rate reaching 4.5 percent in 2027. It is also pricing in when Poland’s Monetary Policy Council may decide on the first increase. Some central banks have already raised rates.
The war in the Middle East between the United States and Iran has led to extreme increases in oil prices. Brent crude futures have risen by 73 percent compared with prices at the beginning of the year. Although it still seems too early to say that this has clearly affected consumer activity, in a recent interview with Bloomberg, MPC member Henryk Wnorowski said he was more concerned about the negative impact of the Middle East situation on economic growth in Poland than about elevated inflation. Wnorowski emphasised that we are operating in an environment of enormous uncertainty and that a premature decision to raise rates could harm the economy even more.
Professor Adam Glapiński suggested after the latest MPC meeting that discussions about interest rate hikes had appeared during recent debates. Other MPC members, including Przemysław Litwiniuk and Ludwik Kotecki, indicated that the debate on a rate hike could begin in July. It is worth remembering that by then the market will already know the outcome of the European Central Bank’s June decision, which could potentially bring the first move among the world’s key central banks. On the other hand, rate hikes have already taken place in Australia and Norway.
Inflation projections will be crucial for the MPC’s future decisions. If they show that inflation will remain significantly above the target until the end of the year, the likelihood of rate hikes will clearly increase. The market still sees considerable potential for hikes, although expectations regarding their number have declined slightly.
“The interest rate futures market points to two or three hikes this year, which in my opinion seems excessive,” Michał Jóźwiak, financial markets analyst at XTB, told MarketNews24. “Statements by the NBP president also suggest that the bar for rate hikes is set high. The key issue will not be the current increases in oil prices, but second-round effects — inflation resulting from demand-side rather than supply-side factors, linked to higher consumption driven by increased wage expectations caused by rising inflation.”
The market also expects the forward rate to reach 4.5 percent next year. At the same time, it sees little chance of rate hikes over the next three months.
The July meeting of the Monetary Policy Council will be crucial. That is when the latest inflation projections will be published, and it will take place after the ECB’s June meeting, for which markets are indicating an 80 percent probability of an interest rate hike. On the other hand, not much may change within a single month, and the central bank may still not have enough information on how inflation will develop amid uncertainty related to the war in the Middle East.
The Strait of Hormuz remains closed, keeping oil prices at elevated levels and threatening not only to keep inflation high but also to push it higher. In an environment of high consumer prices, central banks are considering their next moves. Some of them have already decided to raise rates, as was the case with the Reserve Bank of Australia and Norges Bank.
“The two European banks most likely to raise interest rates are the ECB and the Bank of England,” the XTB expert assesses. “For both of these banks, energy commodity prices and their future impact are fundamental.”
However, the current situation differs significantly from what was observed in 2021–2022, and it is reasonable to ask whether interest rate hikes by central banks such as the ECB, the Fed or even the NBP make sense.
Investors around the world are primarily wondering what the Federal Reserve will do, especially as it will soon be meeting under a new chair.
“Markets are moving closer to pricing in Fed rate hikes, almost ruling out a rate cut, but the geopolitical situation will still be the decisive factor,” explains Jóźwiak from XTB. “While European banks should be expected to act mainly this year, in the case of the Fed, decisions may shift into next year.”
