Several weeks ago, analysts expected that the biggest central banks will raise interest rates. Today, because of difficult situation on global markets, this has changed.
“Banks have a trouble. There is the danger of a crisis. In order to support companies and economies, interest rates should be reduced. This means risk, however”, Piotr Kalisz, Citibank Handlowy economist said. If investors believe that central banks will always help them in troubles, they may become careless.
Nevertheless, Citibank New York economists expect 25 base points cut of interest rates in the USA before September meeting of Fed. They believe that the main rate will drop by 50 base points this year, to 4.5 percent, or the level in Poland. The situation in Europe looks slightly different.
"Only recently, we have expected the European
Central Bank to raise rates in September. Now, we believe that it will wait and
raise them at the end of the year. There will be one more increase in 2008”,
Marta Petka, Raiffeisen Bank economist said.
Analysts of London Citibank
forecast that European rates will stay unchanged till at least the second
quarter of 2008. “In order not to kill the economy”, Piotr Kalisz explained.
Although analysts have changed their expectations as far as
foreign central banks are concerned, they don’t expected any changes at the
Monetary Policy Council. The market expects that it will raise interest
rates.
“I don’t see the risk of USA crisis to move to real economy. The Monetary Policy Council should watch what’s going on over the ocean but it should not treat global situation as its main reason while making decision”, Marta Petka said. In 2008, the main interest rate in Poland is expected to grow to 5.25 percent.
The developments within the economy prove it may be like that. Last Friday, the central statistical office GUS said that retail sales jumped over 17 percent while the unemployment rate dropped to below 10 percent in the second quarter. These are strong arguments for the MPC to raise rates as early as in August.