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Interest rates 2023. When is the first interest rate cut by the MPC? Two terms

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NBP interest rates have remained at the same level since September 2022. Although the Monetary Policy Council has not formally ended the monetary policy tightening cycle, there are more and more dates when the first interest rate cut may take place. In recent days, such forecasts have been presented by representatives of the state-owned Bank Gospodarstwa Krajowego and ING Bank Śląski.

The main reference interest rate has remained at 6.75 percent since September 8, 2022. Analysts of the state-owned Bank Gospodarstwa Krajowego expect, however, that in November this year. will come to the first interest rate cuts in Poland. Such forecasts were presented in the latest quarterly macroeconomic report of BGK.

“CPI declines open the way to interest rate cuts. We assume the first cut by 50 bps in November this year and further cuts (by a total of 150 bps) next year,” we read. Their forecasts therefore show that at the end of 2024 the reference rate will be at the level of 4.75%.

PAP/Maciej Zielinski

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Interest rates – when are the first cuts?

“We believe that the combination of disinflation processes with poor economic performance and problematic lending prospects paves the way for interest rate reductions this year. In the near future, the MPC will focus primarily on changes in CPI forecasts. Factors related to the economic situation will be of secondary importance” – they assessed analysts.

In their opinion, the MPC is waiting for two pieces of information reducing the risk of disinflation scenario. “The first is the situation on the food market in the summer of this year, and the second is the situation on the energy commodity market before the winter of 2023/2024. They will help reduce uncertainty about a large part of the inflation basket in the coming quarters,” the representatives of the state bank indicated. “Unless there are further disturbances, e.g. as a result of renewed fears of an energy crisis, the Council will have room to cut interest rates,” the analysts stressed.

It was pointed out that so far the MPC has not given any signals regarding the possible scale of interest rate cuts. “We assume that due to external conditions related to the high level of interest rates on the core markets, decisions will be cautious (50 bps each) and will be taken gradually on the occasion of the publication of inflation projections, starting from November. This implies a reduction of the reference rate by 200 bps by the end of next year, according to forecasts.

At the same time, BGK analysts do not rule out that “the MPC may not announce the start of the cycle of interest rate cuts, but use the narration of one-off adjustments (by 50-100 bps), adjusting the current level of interest rates to the progress made so far in reducing the CPI”.

According to the economists of ING Bank Śląski, the first interest rate cut may take place as early as September. They wrote about it in the commentary to the introductory ones data from the Central Statistical Officefrom which it follows that inflation in June 2023 it was 11.5 percent year on year. Compared to the previous month, prices remained at the same level. For comparison, in May, the increase in the prices of goods and services amounted to 13 percent on an annual basis.

#CPI inflation in June fell to 11.5% y/y (ING 11.7% y/y, consensus 11.6% y/y) compared to 13% y/y in May, with this rate in In August we will see 9.8 percent y/y, we estimate that #RPP will cut rates in September. This is how we see it, although we are not supporters of this decision, “the economists of ING Bank Śląski noted on Twitter.

PKO BP economists wrote that the conditions for the first interest rate cut set by the president of the National Bank of Poland and at the same time the chairman of the MPC, Adam Glapiński, will be met in November. “Inflation is already 6.9 percentage points lower than in February’s peak, which will probably be positively received by the MPC. In our opinion, CPI inflation will continue to decline in the coming months, and it may be in single digits at the turn of 3q/4q23,” the analysis reads. .

“Inflation below 10 percent and the prospect of its return to the target in the monetary policy impact horizon were mentioned by President A. Glapiński as reasons for interest rate cuts. In our opinion, they will be met in November,” added representatives of this bank.

In previous months, economists of Bank Pekao also wrote about the fact that expect the first interest rate cut in 2023.

“The window for cautious cuts will appear only in the second half of 2024”

Meanwhile, the chief economist of mBank, Marcin Mazurek, in an interview published this week with the Polish Press Agency, stated that in 2023 there will be no interest rate cuts in Poland. In his opinion, space for this will appear in the second half of next year.

– It seems that there is a chance for CPI inflation to fall below 10 percent at the end of the year, but it should not have any significance for monetary policy, although the NBP president suggests that then the discussion on cuts will start. Central banks have already proven that they can swerve with their policies and I believe that our central bank’s behavior will be determined by a re-reading of macro conditions, and these have not improved significantly. What the MPC is saying now is of little importance for the final shape of monetary policy, said Mazurek.

– I assume that we are able to go down to the NBP inflation target in 2025, but we will not be able to do it if there are interest rate cuts along the way. It seems that a window for cautious reductions will appear only in the second half of 2024, added mBank’s chief economist. The NBP inflation target is 2.5% +/- 1 percentage point.

MPC meeting in July

During the June press conference, the president of the central bank, Adam Glapiński, emphasized that the Council had not formally ended the cycle of rate hikes. As he explained that if inflation falls below 10 percent, “then the Council will look at the documents prepared by the bank’s analytical staff, what the situation will look like in the coming quarters. If it is certain that inflation will also fall significantly in the coming quarters, then the possibility of a reduction (of interest rates).

The next MPC decision-making meeting will be held on July 5-6. Bank BNP Paribas economists expect “the official end of the monetary policy tightening cycle” at this meeting. A one-day non-decision-making meeting is scheduled for August.

Schedule of MPC decision-making meetings in 2023:

  • July 5-6,
  • September 5-6,
  • October 3-4,
  • November 7-8,
  • December 5-6.

Main photo source: MOZCO Mateusz Szymanski/Shutterstock

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