Today’s MPC decision of cutting interest rates by 50 bp comes as a surprise, as most analysts expected a cut by 25 bp. It is a good and brave decision, which is to boost economy and maintain price stability

Taking into account the prolonged period of deflation, ie. a general decline in prices, and the fact that despite the deflation interest rates in Poland remain among the highest in the European Union, we should appreciate the MPC’s decision. Before the cut the real interest rate in Poland was 2.6 per-cent. Higher rates were recorded only in Croatia (5.1 %) and in Hungary (2.9%), while rates at the same level were recorded in Bulgaria and Greece.

Today’s decision is also potentially good news for corporate bond issuers. Not only will it allow to lower the cost of financing and boost investment growth, but will also limit debt deflation, ie. the increase of the real value of debt while the prices are falling.

 

Rafeł Rewczuk
Analyst of Michael / Ström Brokerage House