Change of mood during the MPC meeting. Economists are revising their forecasts for interest rates
The massive US-Israeli air attack launched last Saturday, hitting over 1,000 targets in Iran, has greatly increased tensions in the Middle East. In response, Iran carried out retaliatory missile and drone attacks on Israel and American bases in the region (including in Qatar, Bahrain and Kuwait) and is trying to block the Strait of Hormuz, which is crucial for the supply of raw materials.
This distant event may, however, influence the decision of the Monetary Policy Council regarding interest rates in Poland. We will meet her on Wednesday afternoon. In January and February, the Monetary Policy Council paused, the last reduction was carried out in December.
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“On Monday, we were convinced that after two months of pause, March would bring a rate cut of 0.25 percentage points. Today, after yesterday's strong weakening of the zloty, we have much more doubts” – wrote PKO BP economists in their Wednesday morning comment, who – like the vast majority of analytical centers – announced a rate cut at the March MPC meeting on Monday.
At that time, the markets' reaction to the war in the Middle East was still calm, but on Tuesday there were signs of panic on the stock markets, including: in Asia, emerging market currencies were losing, the dollar was gaining, and crude oil prices rose significantly again, reaching $85. per barrel, the highest level in a year and a half. Gas prices also skyrocketed. The USD/PLN exchange rate has gone up by 11.5 cents in three days and we are paying for American currency PLN 3.69, the highest since the beginning of November (but it's still less than PLN 3.90 from 12 months ago).
The Monetary Policy Council reduced interest rates in 2025 by 1.75 percentage points, to 4%. in the case of the reference rate, and previous forecasts assumed two or three more cuts in 2026.
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Own study based on Central Statistical Office data
PKO BP experts added that the reason for maintaining the pause at the Monetary Policy Council meeting ending on Wednesday will be the invasion of Iran and the US by Israel and the observed escalation of the conflict, which led to an increase in oil and gas prices, as well as the depreciation of the zloty. “Together, this creates an inflation shock, the scale of which is still difficult to estimate,” they noted.
“The Council will get acquainted with the new projection of GDP and inflation, which will probably show a much lower CPI path than in the November projection. The reduction is also supported by recent statements of MPC members, who suggested that March would be a good moment to make a cut,” they wrote.
“I guess there's no point in thinking about it. There will be no rate cut from the Monetary Policy Council tomorrow (Wednesday – ed.). For now, however, it is not worth predicting scenarios of stopping or reversing the direction of interest rates. It's definitely too early for that. The current situation is not 2021/2022 (demand is completely different),” mBank economists wrote on the X website on Tuesday.
There is no question of interest rate increases
ING Bank Śląski analysts noted that the current shock is rather a temporary inflation risk, but at the same time it increases uncertainty, which may limit corporate investment and household consumption, which means a risk of slowdown in GDP growth.
According to their estimates, current oil prices will remain around $85. per barrel would increase inflation in Poland by 1 percentage point. (forecasts for 2026 assumed a decline in the CPI to approximately 2.2% from 3.6% in 2025). “However, we still assume that the current increase in commodity prices is temporary, which is also confirmed by the valuation of commodity futures contracts. This is a supply shock – central banks tend to ignore it. Covid and the war in Ukraine were a combination of demand and supply shocks and therefore required rate increases“- they wrote, emphasizing that there is no question of rate increases now, but the discussion concerns how much smaller the rate cuts may be than previously assumed.
