At the moment, interest rate cuts will not have much impact on the weakening economic growth. Recent data on industrial production, retail sales, employment and wages, as well as preliminary data on GDP in 2012, and above all changes in its structure, only confirm that the economy is strongly inhibiting. In a moment inflation will be around the lower limit of the inflation target.
Households have clearly shifted part of their revenues to the envelope – savings.
Therefore, it is difficult to count on an increase in their interest in consumption, and thus in loans, even after lowering interest rates. It is not the cost of credit that currently determines their propensity to consume. The question is whether these household decisions will be affected by lowering deposit rates, which banks have already started to clearly implement. Probably not in the first quarter, at most we will observe the search for other ways of investing savings.
Also, companies are not willing to get into debt. Many of them limited investments, and those that implement them finance expenses primarily from their own resources.
The interest rate reduction will not increase their investment activity and thus activity on the financial market, because the investment is currently determined by the expected demand and not the conditions of access to external financing.
On the other hand, today’s MPC decision is important for enterprises and households that already have obligations to financial institutions, because it will reduce the cost of debt service, and thus will leave some money in the portfolios of households and enterprises. However, it is difficult to expect that in the first quarter or even in the first half of this year it will translate into an increase in propensity to consume or invest.
The currency market has not yet reacted to the interest rate cut alone.
If anything, the reaction will be visible after the MPC press conference. When its members announce a break in the monetary policy easing process, we will probably see the zloty strengthening. And this will probably be the case, as it should be expected that now the MPC will wait for the next inflation projection. The more so because the recent readings of the Composit PMI indicator for BRIC countries show that the situation in these economies is improving (Brazil and China – clearly, and Russia and India – quite poorly), which may start affecting the increase in world prices, which can be seen already (from the second half of January) even after changes in the prices of oil, copper, soybeans.