PL: December’s MPC meeting without surprises
During the final MPC meeting of the year, there were no major surprises. The reference rate was maintained at 5.75%, with the press release emphasizing the anticipated inflation trajectory. We believe the first opportunity for rate cuts will arise in March, contingent on a favorable macroeconomic projection.
The press release primarily focused on the inflation outlook. It highlighted that the higher inflation rate is mainly due to increased administered prices of energy and, to a lesser extent, higher food prices. Core inflation remains elevated, driven by significant service price dynamics. Wage increases, particularly in the public sector, are contributing to domestic price pressures. However, demand and cost pressures in Poland are relatively low, which limits domestic inflationary pressures in the context of a weakened economy and lower international inflation.
In the coming quarters, the MPC expects inflation to remain above the target. However, in the medium term, it should return to the target, assuming current interest rates and a gradual decrease in wage dynamics. Nonetheless, uncertainty persists regarding energy prices, especially with the potential unfreezing in the second half of 2025, and their impact on inflation expectations.
We anticipate the first rate cut could occur as early as March, following confirmation of the disinflationary path in the next macroeconomic projection, or possibly slightly later in the second quarter of 2025. Our baseline scenario projects a 100 basis point reduction in the base rate next year, with risks skewed towards more aggressive cuts.