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Interest rates 2023. When is the first rate cut? Gabriela Masłowska from the Monetary Policy Council explains, Bank Pekao analysts comment

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Interest rates may fall this year. A cut of 25 basis points in September or October is theoretically possible, said the member of the Monetary Policy Council Gabriela Masłowska. As she pointed out, the start of the interest rate cut phase can be treated as a factor that can counteract excessive strengthening of the zloty, which would be unfavorable for exports. Bank Pekao analysts wrote about the novelties in MPC communication.

The main reference interest rate has remained at 6.75% since September 8, 2022. Some economists expect that in Sept. the first interest rate cut. “Theoretically, it is possible to start the phase of interest rate cuts even before the latest projection of inflation and GDP (gross domestic product) appears,” Gabriela Masłowska informed in response to questions from the Polish Press Agency. The NBP will publish a new projection of inflation and GDP in November.

Masłowska reminded that the MPC started the period of interest rate increases in October 2021, i.e. in the month preceding the projection. “However, the Council already decided at that time that it had at its disposal a sufficiently wide spectrum of macroeconomic data to allow it to make the ‘first rate hike’ before the projection appeared. So if, for example, in September or October, MPC members decided that the incoming data were convincing enough to make a decision on the ‘first cut’ even before the projection appears, I think that it would be understandable for participants of economic life” – stressed the MPC member.

According to the current schedule of meetings of the Monetary Policy Council, the next decision-making meeting of the Monetary Policy Council is scheduled for September. This means that then the first interest rate cut may take place at the earliest. A one-day non-decision-making meeting is scheduled for August.

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Gabriela Masłowska on interest rate cuts

Gabriela Masłowska announced that when deciding whether to support the interest rate cut motion, it will be important whether at the time of voting she will have information that the process of falling consumer inflation is likely to continue.

“An important argument influencing my voting method will also be how the situation in the real economy will develop. It seems that the pace of economic activity growth will be relatively low at the time of decision on the level of interest rates in autumn this year. Such The situation would be an important argument in favor of seriously considering a decision to start the process of easing the monetary policy, assessed the MPC member.

Gabriela Masłowska, MPC memberPAP/Leszek Szymanski

According to the economist, the first interest rate cut should be moderate and should amount to 25 basis points, because the process of decreasing the intensity of inflationary phenomena in Poland is taking place gradually and there is no sign of a recession this year. “Whether there will be further reductions will depend on the results of ongoing analyzes of the macroeconomic situation of our country” – she added.

“Factor that may prevent excessive strengthening of the zloty”

Masłowska also pointed to the strengthening of the zloty, which may play a role in limiting the intensity of inflationary phenomena. At the same time, the MPC member assessed that excessive appreciation of the zloty would be a risk factor for the real economy.

“By excessive strengthening of the zloty, I mean such a strengthening of our currency that would lead to reaching exchange rates at which exports could become unprofitable. From this point of view, the beginning of the phase of lowering interest rates can be treated as a factor that can prevent excessive strengthening of the zloty” – indicated Masłowska .

Analysts of Bank Pekao, referring to this part of Masłowska’s response, wrote about “news in MPC communication”. “Perhaps a novelty in MPC communication (interview with G. Masłowska for @PAPBiznes) – interest rate cuts in autumn would counteract excessive appreciation of the zloty and the benchmark is the exchange rate of profitability of exports” – we read in the post on Twitter.

Zloty stronger

According to the latest available cyclical survey of the National Bank of Poland in the enterprise sector “Quick Monitoring”, in the first quarter the EUR/PLN exchange rate, at which export becomes unprofitable, is 4.30, and USD/PLN is 4.0.

On Tuesday evening, the euro costs around PLN 4.44 and the US dollar close to PLN 3.97.

According to the estimates of Bank Pekao analysts, “the zloty is so strong against the euro that exports are unprofitable for some exporters (30-40 percent), against the dollar that for most (55-60 percent) it is unprofitable.” “Normal distribution of profitability rates and shift of their parameters in line with trends” was assumed.

PAP/Maciej Zielinski

Main photo source: PAP/Leszek Szymanski

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