We all know that the Monetary Policy Council (RPP) is independent but it does not operate in a vacuum. As such, the MPC must take other factors into account when conducting monetary policy. Given the proximity of the election, this meeting seems particularly interesting.
Waiting for MPC
Today we await the decision from the Monetary Policy Council. Analysts in the market have become much more cautious after the September shock. There are two popular scenarios on the table. On one hand, we have the potential of retaining the current interest rate which seems rational after the strong September shock. On the other, there is a proposal for continuing the cycle with a 0.25% reduction. A larger reduction would be surprising. The idea of continuing the cycle with a strong drop in inflation has its justification. However, we must remember that the MPC can’t ignore what is happening in the fuel market. As a result, to explain this as such a success in the fight against inflation, separate from the electoral context, is nonsense. What reactions can we expect for the Polish Złoty? If interest rates decrease, we can expect a rise in the Euro rate and other currencies against the Złoty. This will stem from closing positions in Poland, based on a consistent interest rate. If they remain the same, we can expect strengthening for the same reason.
Australia doesn’t change interest rates
The Royal Bank of Australia did not change interest rates. This country, like most in the world, is grappling with high inflation. However, it is worth remembering that the current trend is very favourable. If it is maintained, there is a chance that Australia will achieve positive real interest rates this year. This is a situation where the interest rate is not lower than annual inflation. Then, consumers have a real incentive to save, as the market cost of money begins to outweigh its loss of value, which stops fuelling the inflation spiral. After the decision, the Australian dollar strengthened against the US dollar. The reason was fear of a rate cut and position reversal after the decision.
Turkey loses to inflation
In Turkey, we are painfully realizing that once unresolved problems quickly seek vengeance. This is visible on the example of inflation. The current activity in terms of interest rate hikes is a step in the right direction, but absolutely insufficient. Let’s remember that interest rate increases usually impact the market only after some time. Literature often indicates a few quarters. Even in today’s times, where access to information is increasingly better, this means that the current increases in interest rates should not yet work. On the other hand, interest rates amount to 30% and inflation is 61.5%. If money loses such significant value, investing it around the interest rate does not make citizens stop spending to save.
Today, in the economic data calendar besides the Monetary Policy Council decision, we also have the ADP report on employment in the US.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat
