The Monetary Policy Council (MPC) will leave interest rates unchanged in 2024 and 2025, Bank Pekao analysts estimate. According to them, consumer inflation in 2024 will still be on a downward trend, at around 5% y/y at the end of this year, but risks are clearly on the higher side and there will be a slight increase in inflation in 2025, mainly due to the consolidation of growing demand pressures that have emerged earlier than expected.
“While our view is that inflation in 2024 will still be on a downward trend (we expect around 5% y/y in December 2024), the risks are clearly on the higher side. The President of the NBP also pointed this out yesterday. We even expect a slight increase in inflation over the next year, which means that it will remain above the NBP target. These are sufficient reasons, in our view, for the MPC not to decide to cut rates either this year or probably next year,” according to the bank’s daily report.
Analysts stress that consumer demand will accelerate rapidly at the beginning of this year.
Well, the descent of inflation to the target will almost certainly be temporary. In Q2 2024, inflation will start to rise again – which was explicitly announced yesterday by the NBP president. This will partly be due to regulatory factors: in April, the 5% VAT rate on food is to be reinstated and in July energy prices will start to be unfrozen (we assume that they will rise by around 10%). In theory, the MPC does not need to worry about these changes, as they will bump up inflation but not change its dynamics. The MPC will also have other reasons to worry about inflation. Consumer demand will accelerate rapidly at the beginning of the year, mainly due to rapid growth in real wages, driven by a tight labour market, a strong increase in the minimum wage and an increase in public sector wages. Social transfers will also increase quite significantly: 500+ will turn into 800+ and there will be new benefits (e.g. so-called ‘granny benefits’), the bank reported.
The bank’s economists point out, the current macroeconomic situation is different from the last November NBP projection in terms of intensifying demand pressures.
“As we know, since November, private consumption has been growing on an annual basis in Q3 2023, which according to the NBP was only expected to happen in Q1 this year. Inflationary risks from this source are obvious and will not escape the attention of the authors of the March NBP projection. Especially as the prospect of unblocking the NAP and its consequences for growth, especially in 2025, will add its own,” the bank reported.
During a press conference yesterday, the president of the National Bank of Poland (NBP) and chairman of the Monetary Policy Council (MPC) Adam Glapinski said that the Council now takes core inflation as the main indicator it analyses when making decisions, as it is free of uncertainties related to fiscal and regulatory policy.
The MPC decided to keep NBP interest rates unchanged in January, with the main reference rate at 5.75%. The market consensus was for no change.
Monetary Policy Council (MPC) member Cezary Kochalski assessed in November that stabilisation of interest rates throughout 2024 is a possible scenario – ‘do I allow for no change in interest rates throughout next year and leaving the reference rate at 5.75%? The answer to this question is yes. However, this does not mean that I am announcing that this will happen as a matter of course. It will probably depend on incoming information on the inflation outlook and economic activity”. He assessed that in 2024, the demand side is coming to the fore, what matters is what will ultimately be implemented in fiscal policy after the general elections, its shape is clearly touching the demand side and displacing the waning supply side issues – hitherto foregrounded.
Source: Bank Pekao and ISBnews
