Interest rates in Poland unchanged until 2025?
Macrocompass February 2024 - our macroeconomic forecasts, preview of monthly data readings and the expected scenario of events on the financial markets
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Macroeconomic scenario
Economic growth
In light of the initial estimate of 2023 GDP (annual average growth rate of 0.2%, implying 1.1% yoy in Q4), the Polish economy proved to be less dynamic than anticipated. In particular, household consumption is recovering at a singularly slow pace. This supports our forecast of a limited rebound in consumption in 2024 (certainly not a boom). Despite very fast real income growth (7-8%), consumption is slated to rise by less than 4% due to high interest rate burden and the need to rebuild real savings following the recent inflationary episode of. At the beginning of the year Poland will also suffer from poor external demand. All in all we expect Polish GDP to rise by 3% this year.
Inflation
The first quarter of 2024 will bring a continuation of rapid disinflation. In turn, inflation path in the next months will be strongly dependant on regulated factors. With the implementation of our assumptions: return of the 5% VAT rate on food (from the beginning of the second quarter) and new energy tariffs for households (freezing until mid-2024, then introducing other protective measures), CPI in March will reach a minimum of around 2.5% yoy. For a while, inflation will be within the band for deviations from the target to accelerate in the second half of the year to about 4.5-5%. However, this rebound will be based solely on non-core factors - asymptotic downward trend of core inflation will be continued.
Monetary policy
At the beginning of the year we decided to change our interest rate forecasts. The MPC’s hawkish turn, the revival of NBP projections as a key waypoint for the MPC and the expected acceleration in both GDP and prices (suggesting that the window for rate cuts is closing fast) are all arguments in favor of unchanged rates in both 2024 and 2025. There are some risks of rate cuts only due to potential excessive PLN appreciation.
This publication (hereinafter referred to as the ‘Publication’) prepared by the Macroeconomic Analysis Department of Bank Polska Kasa Opieki Spółka Akcyjna (hereinafter referred to as ‘Pekao S.A.’) constitutes a commercial publication and is for information purposes only. Nothing contained herein shall form the basis of any contract or commitment whatsoever, in particular it shall not constitute an offer within the meaning of Article 66 of the Civil Code. The publication does not constitute a recommendation provided within the framework of investment advisory services, investment analysis, financial analysis or any other recommendation of a general nature concerning transactions in financial instruments, an investment recommendation within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse or investment advice of a general nature concerning investment in financial instruments, and the information contained therein cannot be regarded as a proposal to purchase any financial instruments, an investment or tax advisory service or as a form of providing legal assistance. The publication has not been prepared in accordance with legal requirements ensuring the independence of investment research and is not subject to any prohibitions on the dissemination of investment research and does not constitute investment research.