As expected, interest rates in Poland have remained unchanged, and all signs indicate that the rates will stay at the same level until the end of this year. Interestingly, this comes at a time when inflation is significantly below the target, and the real interest rate is the highest it has been in years. Does this really mean that borrowers have no chance of seeing lower interest rates this year?
The main interest rate has remained unchanged at 5.75%. Essentially, no one expected any change, even with inflation dropping to 1.9%, clearly below the 2.5% target and to the lowest level since the beginning of 2019. Of course, it’s important to remember that the last low reading is the result of a very high base from last year, and this effect will diminish in the coming months. Moreover, from April 1st, the 5% VAT rate on food returned, and by the middle of the year, we are likely to see energy price increases, which will have the strongest impact on inflation rebound. On the other hand, abandoning all kinds of inflation shields will bring us closer to the inflation target, as this year’s “base” price level will allow for a decrease in prices to the target next year, as confirmed by the March projections of the National Bank of Poland (NBP). Moreover, considering the continuation of shields, inflation would not meet the target until the end of 2026. Therefore, a slightly higher inflation now may bring us closer to interest rate cuts next year. However, is there a chance that we will see cuts this year?
There is speculation that if inflation remains within the target by the middle of this year, the Monetary Policy Council (RPP) might decide to cut interest rates in June. Such a move would also be justified by interest rate cuts from the ECB or Fed. At this point, however, cuts from these banks are not so certain. It seems that the earliest possible date for interest rate cuts would be the turn of the third and fourth quarters. If inflation does not rise significantly and fuel prices remain stable, this will open the way to cuts. Until then, we should also observe a still strong złoty, which will allow for further limiting import inflation, also related to the recent high oil prices.
After today’s decision, the złoty remains stable, and we pay just above 3.95 PLN for a dollar, below 4.30 PLN for a euro, close to 5.00 PLN for a pound, while only 4.36 PLN for a franc, which is related to the increasing chances of interest rate cuts by the Swiss National Bank in June.
Author: Michał Stajniak, Deputy Director of the Analysis Department at XTB
