The Monetary Policy Council, as expected, did not decide to change interest rates during its first meeting of the year. This means that the main rate remains at 5.75%. According to professor Glapiński’s expectations, inflation continues to fall and reached 6.1% for the final month of 2023. According to inflation forecasts from November, inflation is expected to average 4.6% this year, which would mean that at some point the real interest rate would become positive, if no changes occur later this year.
Members of the MPC, including Professor Glapiński, have repeatedly pointed out that there should be no expectation for interest rate changes until the next inflation report due in March. The November report suggests a moderate decrease in inflation this year, reaching the inflation target range by the end of 2025. If the March report continues the current trajectory of price dynamics decreasing or even showing a faster return to target, then interest rate cuts should appear later this year. On the other hand, the central bank may pay more attention to the fiscal policy of the new government. If it is deemed excessively inflationary, it cannot be excluded that the interest rate will be maintained for a longer period.
The head of the MPC also pointed out that the NBP operates in a similar mode as the ECB and the Fed, meaning it fully analyzes upcoming data and makes decisions based on them. Therefore, a further decrease in inflation or decreases in the largest central banks globally could lead the MPC to resume cuts.
However it is worth stressing again that according to November’s projections, inflation is expected to average 4.6% this year and 3.7% in 2025, indicating that the reductions won’t be substantial. It is most likely that Poland’s rates could be reduced by 75-100 basis points this year, if the US initiates the cuts. Premature cuts in Poland compared to America could lead to unfavorable flows of foreign investor funds.
After the decision, the złoty reduced some of its previous losses. The exchange rate for EURPLN fell below the 4.35 zł level and was quoted at 4.3427 zł at 15:00. On the other hand, the rate for a dollar was pegged at 3.9690 zł.
Author: Michał Stajniak, Deputy Director of XTB Analysis Department
