New horizons for interest rates: surprises, forecasts, and challenges

Interest rates play a crucial role in financial markets, significantly influencing our economy. Precise forecasting of interest rates is one of the most demanding tasks in financial analysis, with their continuous changes resulting from various factors, ranging from national regimes to credit trends. Inflation and interest rates typically move together, as short-term interest rates are utilized by central banks to ease inflationary pressure.

In November, the Monetary Policy Council (RPP) surprised by maintaining the NBP interest rates at 5.75%, despite economists’ expectations of further reduction by another 25 basis points (25 basis points being equivalent to 0.25%). This has significant implications for holders of PLN-denominated mortgages, as their installments depend on reference rates such as WIBOR.

Experts in the banking sector interpret President Glapiński’s decision as a signal that until March 2024, the RPP may refrain from changes in interest rates, and future decisions will depend on fiscal policy changes introduced by the new government and further inflation assessments. Upcoming NBP publications on inflation, scheduled for March next year, will be crucial for a better understanding of the direction of central bank actions and the adopted monetary policy.

Forecasting of interest rates in Poland is challenging due to differences in assessments by banks and divergent financial analysts’ expectations. In the context of forecasts for the end of 2024, Bank Pekao predicts a 50 basis points reduction by the end of 2024, similarly to BNP Paribas, which anticipates stabilization over the next 12 months and a 50 basis points reduction in the fourth quarter of the following year. On the other hand, economists at Bank Santander Polska expect keeping rates at the current level for most of 2024. Meanwhile, analysts at Goldman Sachs assess that the risk of sustained high inflation in recent months has significantly decreased, potentially leading to more frequent interest rate cuts, possibly to 4% by the end of 2024.

Differences in economists’ opinions highlight the need to consider various scenarios in financial forecasts, and it is often worthwhile to assess project profitability based on more conservative assumptions. Many economists argue that the era of negative interest rates (i.e., reference rates in EUR in countries such as Germany, France, or Finland) is now a distant past.