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Thursday, November 30, 2023

Interest rates in Poland. The Monetary Policy Council will decide to cut interest rates in September? Economists comment, forecasts

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Interest rates have remained at the same level since September 8, 2022. However, economists of the largest banks in Poland agree that the Monetary Policy Council (MPC) will decide to lower interest rates this year. However, the differences concern the timing of monetary policy easing and the scale of reductions. We have collected current forecasts.

The main reference interest rate has remained at 6.75 percent since September 8, 2022. The next decision-making meeting of the Monetary Policy Council will be held on September 12-13. Some economists expect the first interest rate cut next month.

Interest rates in Poland

“Poor economic conditions and inflation approaching single-digit levels will be arguments for the MPC to start a cycle of interest rate cuts after the holidays. The result of GDP (Gross Domestic Product) in 2Q23 turned out to be worse than predicted in the July NBP projection (-0.1% y/y r), and the outlook for 2H23 is also increasingly downward risk. We expect the MPC to cut interest rates by 25 basis points in September,” economists wrote. ING Bank Śląski.

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“The NBP projection indicated -0.1% y/y in Q2, so a lower actual reading may make the MPC more determined to start cutting rates already this year. We expect the main rate to be cut by a total of 75%. pb by the end of 2023.” economists chime in Santander Bank Poland.

Also according to economists Credit Agricole “weaker GDP data support scenario of interest rate cuts”. “The data supports our scenario, according to which interest rates will be cut by a total of 50 bps by the end of the year,” they added.

The Central Statistical Office reported this week that Poland’s GDP decreased in the second quarter of 2023 by 0.5 percent year-on-year. New data on core inflation, excluding food and energy prices, was also published by the National Bank of Poland. According to them, core inflation in July 2023 fell to 10.6 percent from 11.1 percent a month earlier.

According to economists mBank GDP data is a “new, dovish piece of the puzzle for the MPC”, although the bank’s representatives expect a rate cut in October. A dove is someone who is in favor of lower interest rates. A hawk is someone who prioritizes keeping inflation low.

However, the weaker GDP results suggest risks for a faster cut already in September. It is symptomatic that there are comments that the rate cut will be carried out even without formally meeting the condition of single-digit inflation. One month in one direction or another is irrelevant from the point of view of monetary policy However, it dilutes the president’s message on the turning points of the cycle (“school error” in 2021 vs. “single-digit inflation” in 2023), mBank’s economists assessed.

Analysts Bank Pekao they expect that this year the MPC may decide to cut interest rates 3-4 times. “Over the last few days, analysts have finally revised their macro forecasts overdue. At the time of the first cut, the tons of comments and the reaction of the markets will not suggest that this is a wrong move and detached from the fundamentals. You will see,” representatives of this bank wrote on X (formerly Twitter) .

“The market believes”

– The market believes that interest rates will be cut by 25 basis points in September. In addition, the market estimates that the MPC will cut interest rates by 25 basis points at each meeting by the end of the year, Mirosław Budzicki, a strategist from PKO BP’s Market Strategies Bureau, said in an interview with the Polish Press Agency.

In his opinion, market expectations as to the pace of interest rate cuts changed after the MPC meeting in July and the MPC conference. – Earlier, before the July meeting, the market expected cuts this year on a smaller level, in the order of 0.75 percentage points. After the meeting, these expectations increased, said PKO BP’s strategist.

At the same time, he pointed out that market valuations of financial instruments indicate that the cycle of interest rate cuts will continue next year as well. – In the first quarter of 2024, the market expects a reduction of about 0.5 percentage points, and in the later part of the year by 1 percentage point. Thus, in the whole of 2024, the reductions would amount to 1.5 percentage points, pointed out Mirosław Budzicki.

If market expectations regarding the scale of interest rate cuts come true, the reference rate would be lowered to 4.25 percent by the end of 2024. – The scale of these expectations is very large, because it means that the market is already pricing in the whole cycle of interest rate cuts. Meanwhile, there is a risk that the MPC will not decide on such a strong easing of monetary policy. It is hard to assume that the MPC will cut interest rates so quickly, when inflation will fall gradually and slowly, and its level will depend to a greater extent on core inflation, assessed Budzicki.

He added that PKO BP’s expectations as to the scale and course of the cycle of interest rate cuts differ from what can be estimated on the basis of market quotations of financial instruments. – We do not expect an interest rate cut at the September meeting, although the probability of a faster move is very high. In addition, we believe that the moderate dynamics of inflation decline in the coming periods will speak for more moderate than market expectations decisions of the Monetary Policy Council – explained the strategist at the largest bank in Poland.


Loan rates may fall

Although interest rates remain unchanged, some borrowers whose liability interest rate has been or will be updated in the coming days may see installment reductions. This applies to people who have PLN loans with a variable interest rate.

This is related to the decline in the WIBOR 3M and WIBOR 6M indices in recent weeks.

WIBOR 3M is currently 6.69 percent.

WIBOR 3M in the last three monthsstooq.pl

6M LIBOR is 6.54 percent.

WIBOR 6M in the last three monthsstooq.pl

A mortgage loan with a variable interest rate based on WIBOR 3M means updating the loan interest rate every three months from the moment the loan is launched. In the case of WIBOR 6M, the interest rate is updated every six months.

Main photo source: Shutterstock

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