According to economists, there will be no rapid rise in interest rates. They pointed to the lack of hawkish language in the statement after the monetary policy board meeting in June and a comprehensive explanation for the reasons for not reacting to the price hike.
During the meeting in June The Monetary Policy Board decided to keep the interest rates of the National Bank of Poland unchanged. “The outcome of today’s MPC meeting confirms our belief that the path to higher interest rates is long,” PKO Bank Polski economists assess.
In their opinion, the MPC will take into account, among other things, uncertainty about the pandemic in its decisions. Economists have pointed out that “this argument excludes July as a springboard for exiting ultra-soft monetary policy.” Moreover, the MPC will take into account the expected slowdown of the upward trend in inflation and the potential strengthening of the zloty “especially if the MPC begins to rise decisively ahead of the world’s major central banks.”
“We would like to remind you that the MPC believes that the exchange rate of the zloty is an important factor influencing the pace of economic recovery. Moreover, the end of the MPC term and change of its composition starting from 2022 are also not conducive to introducing changes in monetary policy parameters “- note PKO BP representatives.
In the baseline scenario, economists assume that “the probability of a rate hike will begin to increase significantly in mid-2022 after the start of the new MPC term.”
Council decisions affect the Poles’ governor. In the event of lower interest rates, borrowers can expect lower loan repayments. At the same time, very low interest rates – currently the lowest in history – are a nominal interest rate on the money we put into a deposit or savings account.
Justifications for the price increase
Pekao Bank economists noted that in the information released after Wednesday’s meeting, “the board decided to justify more than usual why the current inflation (which is temporary and is caused by factors outside the influence of domestic monetary policy) is not a cause for concern, and the central bank’s lack of response – including consistent with the monetary policy strategy.
In their opinion, such a statement after the meeting excludes any possibility of a rate hike in July of this year (assumed by some analysts), and most likely also in November. Pekao Bank economists argue that maintaining inflation next year and dispelling doubts about the continued recovery will determine monetary policy normalization.
Pekao representatives expect to raise interest rates for the first time in March next year.
“The Council’s reluctance to raise its feet”
Economists at Credit Agricole noted that the statement included “new parts that indicate a lower likelihood of interest rate hikes in the coming months.” These are the fragments related to inflation index developments in the coming months.
Economists pointed to “the council’s reluctance to raise rates in response to the sharp rise in inflation recorded in recent months.” “The Board expects inflation to return close to the MPC target in the medium term and that monetary tightening is not necessary at the present time. (…), the continuation of the structural open market operations announced in the statement indicates that in the Board’s opinion even A slight correction to unconventional monetary policy (before a possible rally) cannot be justified at the moment,” we read in the commentary.
Credit Agricole expects that the Monetary Policy Committee will not change interest rates until the end of 2022. “We expect the first increase in the reference rate from 0.10 per cent to 0.25 per cent in the first quarter of 2023” – economists noted.
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