“The only sensible decision”. Expert on the MPC decision

Today, the two-day meeting of the Monetary Policy Council (MPC) ended. This time, the committee decided to keep interest rates at the current level. Therefore, the main reference is 5.75%. on an annual basis.

Zuber about the MPC decision

– The only sensible decision – This is how economist Marek Zuber comments on the MPC move in an interview with Wprost.pl.

Referring to the forecasts of economists, many of whom expected a reduction in interest rates by 25 basis points, Zuber emphasizes that the fact that today’s decision of the Monetary Policy Council surprised analysts “reflects poorly on the Monetary Policy Council.” – In the case of this Monetary Policy Council, anything is possible, so we might as well expect further reductions in interest rates – says our interlocutor.

Let us recall that the interest rates were reduced during the September and October meetings of the Monetary Policy Council. In September, cuts were made by as much as 75 basis points, and a month ago by 25 basis points. Those Council decisions were, according to Zuber, a “mistake.”

When asked whether there is a political context to be found in today’s decision (the election campaign is over, interest rate cuts are over), the expert states that such a context took place in September and October. – For me, the political context was the interest rate cuts made in recent months. Now the MPC returns to the substantive assessment of the situation – explains Zuber.

Reductions only in mid-2024?

When can we expect a return to interest rate cuts? According to our interlocutor, the cuts should take place in the middle of next year at the earliest. – I would wait until the end of the first half of 2024 to see if inflation starts to rebound. Our reference rate is 5.75%. and if inflation was at 6%, this rate is absolutely not too high – explains Zuber.

– I would refrain from reducing interest rates for at least six months, unless something happens that would reduce inflation well below 5%, close to the inflation target – he adds.

Inflation below 5 percent?

The economist predicts that at the end of the year inflation will reach 6%. In the first quarter, if the anti-inflation shield is maintained, it is likely to fall below 5%. According to Zuber, what is important is what will happen in the following months.

– The question is what will happen next, will inflation rebound? The fact that it is falling today is primarily the result of falling raw material prices, falling food prices worldwide, the base effect and, in part, interest rate increases and the fact that we have had a real decline in wages for a year. Next year, no further reductions in raw material prices should be expected, no further decline in food prices should be expected, and the base effect will work in the opposite direction – explains the interlocutor of Wprost.pl.

– By deciding on the level of interest rates now, we influence what will happen in two or three quarters, i.e. in this critical period. That’s why I wouldn’t lower interest rates – he adds.