The Monetary Policy Council at its February meeting did not change the level of interest rates. This is likely to remain so for some time. According to Grzegorz Maliszewski, chief economist at Bank Millennium, there will likely be room for reductions in the second half of the year, but these will likely be gradual and insignificant cuts. The Council will be encouraged to make these cuts due to the additional strength of the zloty and inflation, which after the expiration of anti-inflation shields, could rise to 6.5-7%. Any potential cuts in interest rates will increase interest in mortgage loans, although probably not as strongly as the government program promises.
“In the current conditions, I would assume that monetary policy will gradually ease in Poland and interest rates will be lowered from their current high levels in a gentle way. Especially since we had strong and sudden interest rate cuts at the end of last year which I believe were premature, this will mean that room for rate cuts this year is smaller. But to reduce inflation to the target, fiscal policy should assist in this, but unfortunately, it is expansionary this year. We have an increase in social benefits, which will support consumption and growth, but this will slow down the process of returning inflation to the target,” Grzegorz Maliszewski told the Newseria Bizness agency.
He emphasizes that the best results in fighting inflation are achieved by coordinating monetary and fiscal policy actions. However, this is not expected this year.
“On the fiscal policy side, probably room for tightening will appear in 2025, because we will likely close this year with a record high deficit. Such one has been passed in the budget law, so there is no room for tightening at this level,” says the chief economist at Millennium Bank.
According to the budget law passed in January, this year’s deficit is expected to be around PLN 184 billion. Last year it was about PLN 85 billion, due to factors such as intensive defense spending, the prospect of parliamentary elections in the fall, and the extension of shielding actions for food and energy prices, and the free medicines program for children and seniors.
According to Central Statistical Office data, inflation in December was 6.2% year-on-year, compared to 6.6% in November. The average last year was 11.4%, and economists at Bank Millennium expect the average annual level to fall to around 5% this year.
“Inflation, if it decreases slowly this year, could even increase after the expiration of anti-inflation shields to 6.5-7%, but from the perspective of 2025-2026 it will be close to the inflation target. Therefore, the medium-term inflation outlook will also give space for the board to gradually, with emphasis on this word, lower interest rates,” assesses Grzegorz Maliszewski.
He believes there will be room for reductions in the second half of the year, which means interest rates will likely remain unchanged for several months. Last year, the MPC lowered rates twice – in September by 75 basis points and in October by 25 basis points. The reference rate has since been at the level of 5.75%.
“The Council clearly communicates the desire for stabilization of interest rates. It has tightened its narrative after the parliamentary elections last year and currently there is a lack of desire for further cuts, even though interest rates were cut by a total of 100 basis points at the end of last year, which in my opinion was too quick,” the economist emphasizes. “The slight cuts, likely in the second half of this year, could be influenced by the strength of the zloty, which helps lower inflation and tighten monetary conditions because a stronger zloty is an alternative to interest rate hikes. If the zloty remains strong, this will provide some room to soften monetary policy.”
Other central banks cutting interest rates this year, due to the expected global easing of monetary policy, may contribute to this. Such steps are already visible in our region. In January, the National Bank of Hungary once again lowered its essential interest rate by 75 basis points to 10% (it was 13% at its peak), and the markets expect it to fall to about 5% by the end of the year. The Czech National Bank is also continuing its cycle of cuts – by the end of the year, the basic interest rate is expected to be around 3.25%, while today it is 6.25%. The inflation rate in the Czech Republic is expected to approach the inflation target of 2% already this year.
“In the United States, in the euro zone, interest rates are likely to fall by about 100 basis points, in the Czech Republic by about 300, in Hungary probably by over 500, so this will also create a space for interest rates to slightly decrease in Poland, not to create a environment for an excessive strengthening of the zloty,” predicts Grzegorz Maliszewski.
Decreases in interest rates translate into interest in mortgage loans, although the government’s announced Housing Start program is likely to have a greater impact. A similar situation occurred last year, when this loan segment was driven by the Safe Loan 2% program.
“From the household’s perspective, it is important to create conditions not only for supporting loans and creditworthiness of people interested in buying an apartment, but also to increase the availability of apartments and their supply. If we only support the demand side, creating conditions for cheap credit, this will lead to price increases,” emphasizes the economist at Bank Millennium. “This was the situation we faced last year when the Safe Loan program led to a clear increase in apartment prices.”
The Metrohouse and Credipass Barometer shows that in the largest cities in Poland, the average transaction prices of apartments on the secondary market increased from 15.2% in Gdansk to 34.5% in Krakow year on year. In Krakow, Warsaw, and Gdansk, there were also over 10% increases quarter on quarter. Meanwhile, on the primary market, quarterly changes in the average offer price were slightly smaller – only Gdansk achieved a two-digit result (11.8%). In Poznan, Lodz, and Warsaw it was around 5%, and in Wroclaw – 0.8%.
