Poland will look to extend the current cap on power prices through the end of the year, Energy Minister Milosz Motyka said on Friday, removing a key uncertainty about Poland’s inflation trend and interest rates.
The Polish government will seek to extend the so-called cap on electricity prices, due to expire in October, until the end of the year, the minister said.
During the fourth quarter, power prices in Poland will be frozen at 500 Polish zloty, or $137, per megawatt hour (MWh) in the fourth quarter under a bill the government expects to pass in Parliament by the end of this month.
There will be no further need to cap power prices next year as the price of electricity is expected to drop to below 500 zloty per MWh in 2026, the minister said.
Following the announced intention of freezing cuts, market expectations have now slightly increased that Poland will cut interest rates again by the end of the year.
Earlier this week, the National Bank of Poland cut the key rate by 25 basis points to a reference rate of 4.75%. The bank has delivered a total of 100 basis points of cuts so far this year.
“The post-meeting statement clearly indicates that the rationale behind the rate cut was the decline in inflation,” economists at ING commented.
Central bank governor Adam Glapinski admitted that if the electricity price freeze were to be extended, this would probably give room for interest rate cuts in October.
Glapinski cited fiscal policy, economic conditions, the labor market, and uncertainty around energy prices as the four key risks to inflation in Poland.
Meanwhile, for the first time since taking office a few weeks ago, Poland’s new President Karol Nawrocki used his veto power to block a bill passed by Parliament—and it was a green energy bill easing rules for building onshore wind farms but bundling it with a freeze on energy prices.
The draft legislation would have reduced the required distance of wind farms from residential areas. It also contained a provision that would have frozen energy prices in Poland by the end of the year. Nawrocki endorses a freeze on energy prices, but objected to the freeze being bundled into a bill easing onshore wind farm development.
By Charles Kennedy for Oilprice.com
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