Santander Bank Polska: Interest rates can remain unchanged for most of 2024

The reference rate may remain at the level of 5.75% in subsequent quarters, probably for most of 2024, analysts of Santander Bank Polska assess.

The Monetary Policy Council has left interest rates unchanged, including a reference rate of 5.75%. Most analysts (including us) were wagered another 25b interest rate cut. “We believe that the lack of a downturn in November despite another marked decline in the observed inflation rate (to 6.5% in October) is the first clear signal that the central bank’s response function is changing after the elections – it looks like the MPC will now be much more focused on stabilizing inflation than economic growth. This is even good, because in our opinion the previous rate cuts made in September and October were premature and generated the risk of perpetuating too high inflation.

According to the bank’s analysts, the arguments against further easing of monetary policy “no shortage”.

First, in recent data, there are signs of signs of an improvement in economic activity, an announcement of a recovery in demand. Secondly, a change of government means greater uncertainty about economic and fiscal policy (and a risk on the side a little bigger than a smaller budget deficit). A possible extension of the anti-inflationary shields on the one hand could lower inflation forecasts (at least at the beginning of 2024) but on the other hand means additional fiscal costs, which are not foreseen in the draft budget, which should support the prospects of consumption. If the new government wanted to pursue its pre-election promises (e.g. budget increases, more free), it would mean additional inflationary and fiscal risks.

Tomorrow's conference of the President of the National Bank of Poland (NBP) and the President of the MPC Adam Glapinski (a. 15:00) may provide more guidance, but according to Santander BP, after today's decision, the financial market will have to adjust its optimistic expectations for interest rate cuts in the long term.

We believe that the NBP reference rate may remain at the level of 5.75% in subsequent quarters, probably for most of 2024, Santander Bank Polska stated.

They pointed out that the new NBP projection predicts slower GDP growth in 2023 than in the July projection (a central point of 50% confidence interval lower by 0.3 percentage points), but faster growth in 2024-2025 (+0.5, +0.5, +0.3) respectively.

The CPI forecast was lowered in 2023. (-0,5) and 2024. (-0.55), but it increased in 2025. (+0.15 to 3.75%), which means that at the end of the horizon, inflation still does not return to the official target. The new projection takes into account rate cuts by -100 pb in September-October. Apparently, the monetary policy easing so far has been strong enough to offset the effects of weaker economic growth prospects abroad, at least according to NBP models.

The central bank will present details of the November projection in the coming days.

The MPC decided yesterday to keep interest rates unchanged. Thus, the main reference rate is still 5.75%. The market consensus assumed a 25-b-level cut.

Source: Santander Bank Polska and ISBnews