At the next meeting, which will be held in early November, the Monetary Policy Board will have new forecasts for the National Bank of Poland. This is an important document, published three times a year, that shows the path predicted by economists, including: the dynamics of inflation and GDP. Monetary Policy Committee members make decisions on interest rates largely on their basis.
I believe that this forecast will show the effects of interest rate cuts in September and October, and this is something new compared to the previous forecast. We will see to what extent these cuts will lead to inflation not falling or even – perhaps – increasing in the long term,” said Ludwik Kotecki, a member of the Monetary Policy Council (MPC). According to him, the inflation path from the forecast may show that the CPI will not reach the target in 2025, but only in 2026.
The NBP July forecast assumes that CPI inflation will not return to the NBP target over the forecast horizon (until the end of 2025).It may be in the upper range of the target in the third quarter of 2025 and the fourth quarter of 2025 (3.5% and 3.4%, respectively). It is worth emphasizing that these expectations were based on the assumption that interest rates for July would remain unchanged, i.e. 6.75%. However, it has since fallen by a total of one percentage point, or 0.75 percentage points. in September and 0.25 percentage points in October.
Kotiki pointed out that the current factor helping to curb inflation is the weakness of the economy, and the driving force may be the abandonment of administrative restrictions on rising prices.
— Right now, the economy seems to be doing very poorly. This is of course a factor that will reduce inflation very quickly. We’ve already seen some of this. The only factors that will increase it are fuel, armor, etc. These factors are “discretionary”, that is, they are no longer present in the market to a large or very large extent, but are actually in the hands – unfortunately -. From politicians – added a member of the Monetary Policy Committee.
Let us remember that according to the final data, Poland’s CPI inflation rate fell to 8.2%. On an annual basis from 10.1 percent in August. This means that the annual dynamics of CPI inflation are the lowest since November 2021 and for the first time since February 2022, we are dealing with a single-digit price increase annually.
It is too early to cut interest rates again
Kotecki estimated that due to uncertainty about the new forecasts and the new government’s plans, including the issue of anti-inflation shields, discussion on possible further interest rate cuts should be suspended until the Monetary Policy Board’s December meeting.
—November should be a month – I don’t know the forecast – when the Council will simply have to wait. Also wait – and perhaps this is one of the most important things – for the formation of a new government and the announcement of what it will do in the coming quarters, that is, in 2024. That is: what will happen to the budget – will the budget be as it is proposed? by the previous government; Secondly, what about inflation shields, and what about customs duties: electricity, gas, fuel, etc. There are several risk factors of higher inflation associated with these decisions, which will in fact be the responsibility of the new government. And in November, I assume, at the meeting on November 7 and 8, we won’t know all this yet. This is another excuse to wait and not make any decisions here,” Kotecki told reporters.
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The next meeting after November is scheduled for December 6, although interest rates rarely change in the last month of the year. -Maybe then there will be an opportunity for further discussions. We hope that the situation will be clarified as soon as possible and then appropriate measures should be taken – depending on what we learn from the new government. Kotecki confirmed that perhaps in December we will know the first data for the third quarter.
The Polish economy is weaker than expected
This year, the Polish economy is clearly weakening, and the expected recovery in the middle of the year has been delayed by the bad mood in the Eurozone, our main trading partner. Earlier, the slowdown also affected China. According to Kotecki, the dynamics of Polish GDP will be zero this year. In 2022, our GDP increased by 5.3%.
-Next year it will probably reach about 1%, maybe 1.5%. Certainly less than the assumed 3%. We have a financing gap there and will likely face a long delay in the onset of recovery. It cannot yet be seen anywhere, not only in Poland, but also in Western Europe, Kotecki said.
– If Europe and Germany start to recover, we may have to wait a few months before it affects us. Therefore, I do not currently see any pro-inflationary market factors. He added that at the moment, I see pro-inflationary administrative factors, but these two issues may balance each other out to some extent.
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At the end of September, the government passed the draft budget law for 2024, according to which GDP growth next year is 3%. The GDP growth recorded for the current year is 0.9 percent. The central path of the National Bank of Japan’s forecasts from July assumes GDP growth this year at 0.6%. Then accelerate to 2.4 percent. In 2024
The forecast for Poland’s GDP dynamics quoted by Kotecki is much lower than the latest data provided by the World Bank in a new report. This institution created 0.7 percent. growth this year and raise the forecast for Polish GDP dynamics in 2025 to 3.4%. By 3.2 percent Polish National Bank President Adam Glabinski devoted a great deal of attention to the state of the Polish economy during his speech in October. He confirmed his weakness and lower activity than expected.
On Thursday, more weak industrial data arrived from the Polish economy (despite a slight recovery in September). Meanwhile, producer inflation has slowed, but remains negative year-on-year (deflation).
“Low producer price inflation and weak economic growth are arguments for supporters of easing monetary policy. Especially since the October CPI reading will fall below 7%. Every year. Therefore, in our view, interest rates are likely to be cut in November by 0.25 points.” Another percentage. The risk factor for this scenario is the outcome of the parliamentary elections and the possible change of government, as the reaction function of the MPC may change in a more hawkish direction. However, our assessment of the monetary policy outlook does not change, because we assumed that the room for interest rate cuts is running out and in In 2024, the MPC will be more cautious in easing monetary conditions,” wrote economists at Millennium Bank.
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