Several major central banks have halted interest rate hikes. This does not mean they are about to start lowering them, with fears about a return to higher inflation growing. Poland is in a more challenging situation, with a new inflationary impetus expected to appear next year.
The market remains highly volatile following the Federal Reserve’s September decision about interest rates. Despite a correction on the dollar, the zloty has been losing against the dollar since the beginning of this year, despite having been leading the charge against the world’s strongest currencies recently.
“I wouldn’t worry about the global situation, rate hikes are still happening, they have only been paused in a few places. Monetary policy has a delayed effect on the economy, so central banks are analyzing the effects of hikes they have already implemented,” says Dr. Przemysław Kwiecień, Chief Economist at XTB, in an interview with MarketNews24.
The USDPLN has crossed the 4.40 level, but at the end of September, it was a few cents below this level. The USDPLN was at its highest since February, but on the other hand, the zloty has been losing against the dollar since January 1st this year. This seems quite abstract considering that, not so long ago, the zloty was the strongest currency against the dollar among the world’s main currencies. We could only compete with the Forint or a few South American currencies.
The situation changed dramatically, although the level of interest rates in Poland is still higher than in the United States. Not so long ago, the market was pricing in 75 basis points cuts by the RPP by the end of this year, which would lead to rates in Poland falling below US levels.
“The problem worldwide is the rising oil prices, which have crossed $90 per barrel, up from about $70 not so long ago. For many countries, the issues are compounded by a strengthening dollar, meaning that inflation, which was significantly lower than last year’s levels, is not as under control as it seemed two or three months ago,” explains the XTB expert.
In Poland, after September cuts, we have a base rate of 6%, compared to 5.5% in the USA. It is not ruled out that interest rates will level out in October. Of course, the head of the NBP himself indicated in his last interview that the prospects for cuts in Poland had significantly decreased, suggesting a cut of 25 bp or a suspension of cuts. However, considering that inflation has finally fallen to a single-digit level, to an annual rate of 8.2%, a cut in October should be almost certain.
The situation in Poland is very specific, the impact on inflation of decisions by companies from the fuel and energy sectors, where the Treasury has a stake, is very significant. It is worth mentioning that fuel prices fell by 8.5% in September, while the price of Brent crude in Polish currency rose by almost 16%.
Fuel prices in Poland remain very low given the oil-related fundamentals, which allows to keep inflation in check. However, if oil prices continue to rise and the zloty weakens, the situation at the end of the year could spiral out of control. Energy price hikes have been blocked, and it is also unknown when a 5% VAT on food products will be reinstated.
The problem with inflation is now becoming more complicated globally. The relatively straightforward fight against inflation has ended, particularly in light of rapidly rising oil prices. The policy of OPEC+ is very consistent lately. The United States will not repeat the effort to lower inflation by increasing oil supply through depleting internal reserves. Oil reserves in the US are record low and should be increased in the coming months.
“Taking into account the base effect from last year, even if oil prices didn’t increase, inflation in the US should rise slightly in the coming months, and what is happening with oil no longer provides such certainty, the inflation increase could be higher,” concludes P. Kwiecień from XTB. “In Poland, the situation is different due to our national base effect, inflation should fall until the end of the year, and only then will a new influx of inflation appear, which may be a bigger problem than in Western Europe or the USA. Especially since we are already in a worse situation as we have higher inflation.”
