Millennium: Inflation peaks at just over 18% y/y in Feb, could be in single digits by year end

by   CIJ News iDesk III
2023-02-02   15:24
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The peak in consumer CPI inflation predicted in February could reach just over 18% y/y and drop to single digits by the end of this year, according to Millennium Bank chief economist Grzegorz Maliszewski. According to him, the cycle of interest rate hikes has come to an end, and the timing of the start of rate cuts is uncertain and could come at the turn of the year.

"We are facing a year of decelerating inflation, I assume an inflation peak in February at a little over 18%, then inflation will begin to fall, while it will still be above the NBP's inflation target. I see chances for inflation to reach single digits by the end of this year," Maliszewski said at the presentation of the report "Economic Outlook 2023, just a slowdown or a recession?"

According to him, under the conditions, the prospect of reaching the central bank's inflation target extends beyond 2024, and the timing of the first interest rate cut remains uncertain. He indicated that a cut in the cost of money could be considered by the Monetary Policy Council (MPC) when CPI inflation reaches single-digit levels.

"The timing of the first reduction remains uncertain. On the other hand, in my opinion, the most likely scenario is a reduction in the cost of money at the end of this year and the beginning of next year, at the moment when inflation reaches single digits, then the Council will be willing to seriously consider interest rate cuts. More likely for reductions will be the beginning of next year," Maliszewski assessed.

"Looking to 2024, I see rates clearly lower than they are now, but not the 1.5% level, but more like 3-3.5% as a target level for interest rates," the economist added.

The bank expects GDP growth of 0.7% y/y this year, but sees a weak Q1 with negative annual GDP growth and chances of a recovery in economic activity in subsequent quarters

"Under such conditions, I assume that the MPC will keep interest rates unchanged. The cycle of increases in my view has ended, although the Council does not communicate this, but from the Council's comments there emerges a reluctance to further interest rate increases," Maliszewski concluded.

Source: Millennium and ISBnews