On Tuesday, the Polish government disclosed initial details about the anticipated energy price hikes. Starting in July, electricity prices are set to increase by 24%, reaching 500 Polish Zloty (PLN) per megawatt-hour (MWh), up from the current capped rate of PLN 412. This rise is notably lower than the 60% surge that would have occurred had prices been allowed to escalate to market levels without government intervention.
The government's announcement helps to clarify the potential future inflation rates, although the final impact on household expenses remains uncertain due to unknown distribution fees. These additional costs are expected to be determined and announced between May and June. The potential consumer price index (CPI) impact varies depending on how these distribution fees will be adjusted.
Before this announcement, the National Bank of Poland (NBP) had estimated that inflation could range between 3.8% and 7.8% by the end of 2024. The new data suggest a narrower inflation forecast, with the CPI expected to be between 4.4% and 5.1% in December 2024. The updated forecast is still sufficiently high to maintain a hawkish stance by the Monetary Policy Council (MPC) in the upcoming months.
Citi analysts anticipate that the interest rates in Poland will remain steady at 5.75% throughout the year, in light of the government's recent announcement and its implications for inflation. This projection hinges on the assumption that the MPC will continue its efforts to manage inflationary pressures without further rate adjustments.
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