Polish c. bank's to cut interest rates in July 2025 as baseline, March possible - PKO BP (opinion)

"The reference point for monetary policy remains July. (...) Now we can wonder whether it will be July or a little earlier, i.e. March," PKO BP economist Marta Petka-Zagajewska said.

"We already have five people on the MPC who explicitly allow for rate changes in 2025," she added.

According to PKO BP, the July scenario represents a golden mean between the macroeconomic conditions that would justify cuts in early 2025 (considering, in particular, the normalisation of monetary policy in the US and the eurozone) and the reluctance expressed so far by the majority of the MPC to cut interest rates (in the absence of significant changes in the statements following MPC meetings).

"At the MPC meeting in March, inflation will be around 5 percent, and this may be too high, listening to the current commentary, to decide on rate cuts," Petka-Zagajewska assessed.

"However, we see a risk that a return to cuts could already occur before the end of the first quarter of 2025," the PKO report added.

An earlier downward move would be possible, in PKO BP's view, in the event of a weak eurozone economy, translating into a larger scale of monetary policy easing by the ECB.

Petka-Zagajewska added that the ‘inflation demons’ are increasingly gone and the MPC may want to focus on macro variables other than inflation.

"Now assuming various scenarios of CPI, energy prices, we are talking about average inflation of 4-5 percent, and we are no longer wondering in which year inflation will return to the target, but whether it will be July or September," Petka-Zagajewska said.

"The role of inflation, somewhat along the lines of the Fed, in the MPC's reaction function, will decline. The MPC will be increasingly inclined to take other elements into account," she added.

tus/ han/ nl/