Discussion on possibility of interest rate cuts will intensify in coming months - MPC's Kotecki (interview)
Poland's MPC will hold lively discussions on interest rate cuts in the coming months, although decisions may not come as early as April or May, MPC member Ludwik Kotecki told PAP Biznes. He sees room for rate cuts of 50-100 bps in 2025, with the target being a neutral rate of 4.75-4.50 pct.
"Much of the discussion at the March Council meeting was about the fact that we should start to signal that we are starting to think about reductions. This was also confirmed by the governor at the conference," he said.
"All the more so because in the March projection, inflation remains in a band for six quarters and converges on the target. And this is not the most optimistic scenario as far as the evolution of inflation is concerned," he added.
Poland's central bank NBP governor told Thursday's press conference that at the March meeting, the MPC spent a lot of time discussing the possibilities and prospects for the start of interest rate cuts.
In Kotecki's view, the MPC will face longer and highly spirited discussions on the prospect of rate cuts in the coming months.
"And they will end, I think, with a request for a rate cut. It probably won't happen as early as April. May could also be a difficult month for such a decision," he pointed out.
Kotecki maintains that the rate cut needs to start gently and he would expect it not to be a single adjustment.
"Rather, we will have the beginning of some kind of cycle, whether shorter or longer - it will depend on the situation, on the data," the MPC member said.
"I still see room for 50 to 100 bps cuts this year, depending on the actual inflationary pressures in the economy and on GDP and wage growth. With GDP growth in 2025 in the vicinity of 3.5 percent, a 50-75 bp cut seems reasonable," he added.
In the context of the evolution of inflation in the further horizon, the projection is too hawkish, according to Kotecki.
"If the projection were to take this as the baseline scenario, the path of CPI would also be at a lower level. Either way, the MPC, in my view, cannot conduct monetary policy in response to government actions, over which this monetary policy has no influence," Kotecki assessed.
Kotecki believes that the 3.7 percent GDP growth forecast from the March projection for 2025 is optimistic and sees growth rather at around 3.4 - 3.5 percent.
He judges that the projection in this respect is based on isolated, stronger January data, because nothing else very positive has happened in the economy.
He stresses that such high growth is also due to the high forecasts for investment growth, which according to the projection are expected to reach over 8 percent in 2025.
"In my opinion, this is a bit too high, especially in the private sector investment part. In my opinion, the forecast for the current year is at odds with the information on investment credit, which is de facto non-existent in Poland today," Kotecki pointed out.
"As far as public investments are concerned, the situation is better, because there are funds from the EU and the national recovery plan KPO, as well as announced expenditures on armaments, which will help public investments, but not so much private ones," he added.
tus/ han/ pel/
