The National Bank of Poland was the first to decide to cut interest rates – not only in Central and Eastern Europe, but across the entire continent. This was quite an aggressive move, with a cut of as much as 75 basis points. Other non-Eurozone banks, like the Hungarian or Czech Bank, joined the rate-cutting club. However, the situation remains difficult concerning such decisions. On one hand, we see a deflationary process occurring in Poland, as well as in many other countries. In Poland, inflation is no longer at the level exceeding 18% – as it was a year ago. Currently, it is just over 6% – thus the deflationary trend is quite clear. However, this is certainly not deflation – prices still exceed the inflation target set by the Polish National Bank. Potentially, by the end of the first quarter of 2024, we could reach the inflation target of 2.5%, with a fluctuation of plus or minus 1.5% – but this will only be a temporary improvement. Thereafter, inflation may rise again.
“These are factors that restrict central banks in further decisions, because with overly aggressive interest rate cuts, we could see inflationary pressure. If consumer demand revives, it quickly triggers an increase in inflation. This is precisely what the central banks in the United States and the Eurozone are afraid of,” Grzegorz Sielewicz, the chief economist of COFACE in Central and Eastern Europe, told eNewsroom.pl. “So banks do not undertake to lower interest rates. Also, remember about core inflation – meaning inflation calculated excluding energy and food prices. It illustrates how much price increases spread throughout the economy. In Poland, we see that it is at a rather high level – significantly exceeding the inflation target of the National Bank of Poland. The Czech Republic is closer to achieving lower core inflation and the inflation target. Here, I think that premature actions in Poland could lead to a return of inflation. Therefore, I would lean towards cautious action by the central bank in Poland. However, without a doubt in the coming months – probably in March – we will see another decrease in interest rates in Poland. We hope that the pace of the cuts will not be too aggressive,” recommends Sielewicz.
