Under conditions of uncertain inflation path in 2024. The Monetary Policy Council (MPC) is likely to hold off with further interest rate cuts for at least 2-3 quarters, according to Erste Group analysts. According to them, on average, CPI inflation will be 5.3% next year.
After a sharp cut to the target rate in September by 75 BBs, in October there was a more moderate 25b reduction. These two cuts were the last in the foreseeable future, as the president and other MPC members are changing the rhetoric to a more hawk. With uncertain inflation prospects, we see that the break in the monetary policy easing cycle will last at least 2-3 quarters. Key inflation changes will occur in Q1 and Q2 next year, when we will be more clear about whether the price pressure has decreased for good. Real interest rates (both ex post and ex ante) will exceed zero next year next year, which will be conducive to foreign investments, according to report “Poland Outlook | Recovery and strong zlotys in 2024″.
The inflation trajectory for next year remains uncertain, largely dependent on the political decisions of the new government, it was emphasized.
āKitential considerations include a potential continuation of 0% VAT on certain foods, energy price restrictions and other anti-inflation measures. We expect inflation to circulate around 5% throughout next year,” the analysts wrote.
Erste Group economists raised GDP forecasts for this year by 0.2 percentage points to 0.4% and estimate the acceleration of economic activity to 2.7% in 2024. They expect a significant recovery in consumption, driven by solid wage dynamics and overall disposable income growth, which is shown by high-frequency rates, as retail sales have recently exceeded expectations.
āThe miracule in EU funding between the two funding periods will be mitigated by the influx of RRP funds that are to be launched soon. Poland has already been promised 5 billion euros as part of the pre-financing, which should be used next year. In addition, the negative impact of stocks on GDP should decrease, while net exports will also be. We are forecasting a growth rate of 2.7% in 2024 and 3.2% in the following year,” the report said.
Erste Group forecasts that in the baseline scenario, the zloty should oscillate around 4.3-4.35 per euro.
āThe main factor behind the violent appreciation is the change in the tone of the MPC in Poland, which in recent months has become more hawk. As a result, the market expects another rate cut only at the end of next year. Moreover, the ECB may start a cycle of reductions earlier than expected. Both assumptions affect the strengthening of the zloty, which in the base scenario should oscillate around 4.3-4.35 per euro. Nevertheless, the exchange rate may be subject to high volatility, as the outlook for inflation and thus the NBPās actions are still uncertain,ā the report said.
It was pointed out that waiting for slower fiscal consolidation is pushing the yield on 10-year bonds upwards.
āA long end of the yield curve is influenced by several factors that operate in opposite directions. On the one hand, the expectation of slower fiscal consolidation pushes profitability upwards, on the other hand, inflation expectations fell in the medium term, as the NBP promises to keep higher rates for longer. We can see that the profitability of the 10-year-old will approach 5% next year, and potentially even lower,” the economists said.
Source: Erste Group and ISBnews
