Will there be an increase in interest rates? The MPC member does not rule it out

Interest rate cuts next week?  MPC member: "I would vote"

A week before the meeting of the Monetary Policy Council (MPC), the most likely scenario seems to be leaving interest rates at the same level. According to the MPC member, we can only think about reducing rates next year. This year, an increase cannot be ruled out.

Next Wednesday, a two-day meeting of the Monetary Policy Council (MPC) will begin. The body will most likely decide once again to leave interest rates at the current level.

In an interview for PAP Biznes, MPC member Gabriela Masłowska did not rule out that the Council would decide to increase interest rates at the end of the year. – Interest rates are most likely to stabilize by the end of 2024, but there are so many uncertainty factors that could potentially drive up inflation that I do not rule out the possibility of a rate increase at the end of the year. However, the safest way to think is to stabilize rates – said Masłowska.

Will the Monetary Policy Council increase interest rates again after two years?

Let us recall that the last time the Monetary Policy Council increased interest rates was in September 2022. We then saw a series of 11 increases in a row, by a total of 665 basis points to the level of 6.75%. Then the rates remained at the same level for a year. In September last year, an interest rate cut was unexpectedly announced, by as much as 75 basis points. A month later, there was another cut, this time by 26 basis points. Since November, rates have been unchanged at 5.75%.

According to Masłowska, it will be possible to think about lowering interest rates in mid-2025 or at the beginning of 2026, unless “circumstances arise again or any external or internal processes appear that are currently unforeseeable.” According to the MPC member keeping interest rates unchanged in the current situation is conducive to achieving the inflation target in the medium term, and further decisions should be guided by incoming information regarding the outlook for inflation and economic activity.

“The formation of inflation is burdened with uncertainty”

– It is expected that in the first quarter of this year CPI inflation will return to the level consistent with the NBP inflation target, i.e. 2.5%, +/- 1 pp. At the same time, the decline in core inflation will be slower and it will remain above total CPI inflation in the following quarters. However, inflation developments are subject to significant uncertainty that we must take into account – explains Masłowska.

The MPC member explains that it is primarily about issues related to the impact of fiscal and regulatory policy on price processes, but also about the pace of economic recovery in Poland and the tense situation on the labor market. – We already know that from April there will be a return to 5%. VAT rates on food, which will increase CPI dynamics. However, it is not known how regulated energy prices will develop from July – explains Masłowska.

The March NBP projection assumes that in the scenario of complete withdrawal of current protective measures, inflation may increase to approximately 8% in the second half of this year.

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