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Inflation is falling, and the MPC leaves interest rates unchanged in June
The MPC will not change interest rates. Inflation still leaves room to wait
The Monetary Policy Council will not change interest rates at the meeting beginning on Monday, Bank Pekao economist Kamil Łuczkowski told PAP. In his view, there will also be no rate cuts at the Council’s subsequent meetings this year.
The two-day meeting of the Monetary Policy Council starts on Monday. According to Łuczkowski, Friday’s flash inflation reading closed the door on any possible rate hikes. Poland’s statistics office GUS said inflation fell to 3,1 proc. in May.
That was a lower reading than economists had expected. According to Łuczkowski, for there to be a genuine debate about hikes, inflation would have to move sustainably above the upper band of deviations from the NBP’s target. He added that the May reading also pushed down the entire inflation path for the coming months.
The economist said inflation could rise to 3,5 proc., but that level would be the peak and would not appear until late in the year. That is too little for the MPC to consider rate hikes. He cautioned, however, that the Council will remain careful, because tensions in the Middle East could still push up fuel prices and inflation through the so-called second-round effect, meaning higher costs being passed on to other goods and services.
In his view, the MPC will remain in wait-and-see mode and will continue to watch incoming data. Moderate domestic activity and easing wage pressure do not currently create strong price pressure. The Council cut rates only once this year, in March. The NBP’s main interest rate, the reference rate, currently stands at 3,75 proc.
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