The NBP Governor extends the horizon of stable interest rates

NBP rates unchanged

As we expected, today the Monetary Policy Council has left interest rates unchanged (the reference rate amounts to 1.50%). The bias of the Council's statement has not substantially changed compared to the September statement. The MPC maintained the view that "given the available data and forecasts, the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic balance". Like in September, the Council pointed to "the risks of a deterioration in the global economy and a fall in commodity prices" as the main source of uncertainty for the Polish economy and price developments.

The NBP Governor extends the horizon of stable interest rates

In the press release after the meeting the MPC also stated that "GDP growth in 2016 Q3 was probably close to that observed in the previous quarter". The MPC assessed that data on construction and assembly output signaled a continuing decline in investments in Q3; however, it was related to lower absorption of EU funds within the new EU financial framework and therefore was temporary. During the press conference Adam Glapiński expressed the view that Polish economy was "in full swing", was following "a stable growth path" which was "satisfactory and meeting the MPC expectations". In his view, investments can be expected to accelerate towards the end of 2016. The NBP Governor also informed that, despite the expected increase in inflation to a positive level next year, in his view, the most likely scenario was currently the stabilization of interest rates in 2017 and start of interest rate hike cycle in 2018. In this context it is worth reminding the September's remark of the NBP Governor. He then signaled that conditions justifying interest rate hike may occur in 2017 (see MACROpulse of 7/9/2016). Therefore, his today's remark suggests that the incoming macroeconomic data concerning the Polish economy, including the signals of declining investments in Q3, made him modify the most likely scenario of the monetary policy.

M. Chrzanowski stays in the MPC

Marek Chrzanowski has withdrawn his resignation from the Monetary Policy Council due to "disappearance of reasons of a personal nature". In our view, his decision is neutral for NBP interest rates prospects (see MACROpulse of 7/9/2016).

Will zero real NBP rates make the MPC tighten the monetary policy?

Today's remarks of A. Glapiński pointing to a low likelihood of interest rates increase in 2017 suggest a downside risk to our forecast of NBP rates in 2017. However, we maintain the view that the expected by us acceleration of economic growth in H1 2017, combined with increase in inflation to visibly positive levels and real NBP reference rate drop to a level close to zero, will make the MPC start a monetary tightening cycle in July 2017 and increase the NBP reference rate by 50bp in total in 2017. The main risk to our forecast continues to be the likely prolongation by the ECB of the expanded asset purchase program. If such decision is taken at one of the nearest ECB meetings, the likelihood of interest rate hikes in Poland in 2017 will markedly decrease.

The press release after the MPC meeting and today's remarks of the NBP Governor concerning interest rates prospects are neutral for PLN and the debt market, we believe.