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Sunday, February 16, 2025

A week in the economy. MPC meeting on interest rates, inflation for December 2024, GDP of Germany and China

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The highlight of the week will be Thursday's decision of the Monetary Policy Council regarding interest rates, and a day later a conference of the President of the National Bank of Poland, Adam GlapiƄski. This is what awaits us in the economy in Poland and around the world.

According to announcements made by MPC members, it is widely expected that the MPC will maintain the reference rate at 5.75% in January. (16th month in a row).

The Monetary Policy Council's decision and the conference of the President of the NBP

The key for the markets will be whether NBP President Adam GlapiƄski will maintain his hawkish turn from December at the Friday press conference, when he announced that interest rate cuts will only be possible in 2026, due to the forecasted rebound inflation in the fourth quarter of 2025 after unfreezing energy prices for households.

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According to the November NBP projection, which assumes, as always, an unchanged level of rates in its horizon, regardless of the scenario (freezing/unfreezing of energy prices), inflation enters the upper band of deviations from the target at the turn of 2025/26 and converges to 2.5%. at the end of 2026

After GlapiƄski's statements, communication between the opposing wings of the Council was diversified. Some MPC members still believe that the discussion on rate cuts could start in March (Wnorowski, Kotecki), others point to Q3 (Dąbrowski, Litwiniuk – “after the elections”). A hawkish signal similar to GlapiƄski's position was sent by G. MasƂowska, who did not rule out a rate cut only in the first quarter of 2026.

On the first day of the meeting (Wednesday), the Council will get acquainted with the second inflation reading for December, which will show a detailed breakdown of individual categories of the indicator. According to preliminary data, inflation in December increased to 4.8%. from 4.7 percent, by 0.2 pp. below consensus.

chart visualization

The budget bill is waiting for the president's signature

The constitutional seven-day deadline for signing by the president expires on Friday Andrzej Duda the budget act for 2025. Due to the reduction, in the course of parliamentary work, of expenditure, among others, for the Chancellery of the President, Institute of National Remembranceor the Constitutional Tribunal (TK), the media speculates that the head of state may refer the law to the Constitutional Tribunal. The Tribunal will then rule on the matter no later than within 2 months from the date of submission of the application.

In such a scenario, the government would probably refrain from publishing the judgment and the budget would be implemented in accordance with the law.

CPI and bank results in the USA, inflation data in the euro zone

Most likely, until Wednesday's CPI readings from the United States, the markets will remain under the influence of Friday's readings from the American labor market, which indicate that it remains heated. Wall Street indices fell by 1.5-2%, erasing all of this year's gains, the dollar continued its march towards parity with the EUR (strengthening by 0.55%), and Treasuries yields increased at the short end of the curve by 12 basis points. (2Y), and on the longer one by 8 bp. (10Y).

Number of new jobs in non-agricultural sectors in USA (payrolls) increased in December by the most since March – by 256,000, while the market expected only 165,000. Unemployment rate in the USA it unexpectedly dropped by 0.1 pp. up to 4.1 percent Another study showed that the long-term inflation expectations of American consumers increased to 3.3%. – the highest since 2008

After the data, investors changed their expectations regarding the next interest rate cut. by the Fed only for September-October.

In this context, Wednesday's CPI data, although the Fed targets a different measure of inflation – the consumer spending deflator (PCE), could potentially be a source of additional volatility in the markets. The consensus assumes the CPI reading for December at 0.3%. mdm, the same as the month before, and for the base one 0.2 percent mdm vs 0.3 percent previously. On a year-to-year basis, economists forecast an increase in the indicator to 2.9%. from 2.7 percent, and the base rate remains unchanged at 3.3 percent.

Inflation data will also be released in the coming days euro zone (second reading), as well as from the UK. Britain and Hungarian, Romania and Czech.

GDP reading from China and Germany

On Friday morning Polish time, statisticians from China will release the GDP reading for Q4. The market expects an increase of 5.0%. y/y, which in full-year terms would mean 4.9%, by 0.1 pp. below the government's official target.

On Wednesday, the German Destatis will present GDP data for 2024. The consensus assumes a second consecutive decline in the dynamics of the German economy – by 0.2%. compared to -0.3 percent in 2023. This is only the second case of two consecutive years of recession in Germany since 1961, after an episode of GDP contraction in 2002-2003.

In Romania, the central bank will decide on interest rates on Wednesday. With inflation expected to stabilize in December at 5.1%. and loose fiscal policy, the market does not expect a change in the reference rate from 6.50%.

Main photo source: Grand Warszawski/Shutterstock



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