The Monetary Policy Council has done exactly what the market expected. It has cut interest rates by 25 basis points to 5.75%, which seemed quite obvious given the quite significant drop in inflation for September. Having met investors’ expectations, the złoty has strengthened this time after the decision.
Inflation for September fell to 8.2% y/y, while monthly it was a decrease of 0.4% m/m, one of the largest in recent years. This is why it seemed reasonable that the MPC would decide on another cut, although smaller, in order not to harm the Polish złoty further. This was essentially achieved, as the USDPLN pair tested the level of 4.45 before the opening of the European markets, shortly after the decision it stood at 4.37. There is some weakness of the dollar in this, of course, but investors in Poland certainly breathed a sigh of relief that we did not have such a big surprise as a month ago.
Of course, it is still important how low interest rates can be cut by the end of this year and by the end of this cycle. Before today’s decision, the market priced in the possibility of lowering rates even to 5.25% this year, while in the perspective of 12 months, rates could fall even to 4%. This is not ruled out if inflation continues to fall and the MPC wants to maintain negative real interest rates. In the middle of next year, inflation is expected to be around 5% looking at the latest inflation projections, although of course we will learn the latest forecasts in November. These new projections should answer us the most about how low rates can fall. It is worth emphasizing here that the previous forecasts from July were made with a constant interest rate until the end of the forecast horizon, i.e., until 2025. What’s more, in the new November forecasts, we should receive expectations for 2026, as it is most likely that the achievement of the target may be postponed until this year.
A press conference will take place tomorrow at 3:00 p.m. following the decision, during which Prof. Glapiński may say a bit more about possible perspectives, as the announcement usually does not contribute much to potential forecasts. A novelty was the announced statement by the Deputy Minister of Finance today at 4:30 p.m., but the press conference was eventually cancelled.
Author: Michał Stajniak CFA, Deputy Director of XTB Analysis Department
