Latest data have reinforced the dovish bias of the NBP Governor

MPC bias without significant changes

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). The MPC indicated in the statement that "taking into account the present information, the Council judges that inflation will remain close to the inflation target over the projection horizon”. It may therefore be concluded that the MPC bias has not changed significantly compared to November. This opinion is supported by the view repeated in the statement that "the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic stability”. A new piece of information included in the statement is that: "in the Council's assessment, favourable economic conditions in the Polish economy will continue in the next quarters. Yet it may be expected that GDP growth will decelerate slightly in the following years”.

Lower remuneration of holdings of required reserves

The MPC decided to lower the remuneration of holdings of required reserves from 1.35% to 0.50% as from 1 January 2018. A. Glapiński noted that this decision was of a "technical nature” and consisted in aligning the remuneration of reserves with the deposit rate. At the same time, the NBP Governor noted that together with the decision taken in November (on lowering the rate of mandatory reserve on funds obtained for at least 2 years to 0%, see MACROpulse of 8/11/2017) it was an attempt to increase the attractiveness of long-term deposits.

We estimate that as a result of this decision the annual revenue of the banking sector from interest on the reserve will decrease by ca. PLN 360M, which is a negligible amount in relation to the sector's gross financial result (less than 2% of the result for 2016). Consequently, the impact of this decision on the capitals of banks and – indirectly – on the supply of credit and the aggregated demand in the economy – will not be significant.

Latest data have reinforced the dovish bias of the NBP Governor

At the conference after the meeting, the NBP Governor, A. Glapiński repeated the view presented in recent months that NBP interest rates should stay at the current level until the end of 2018. His views are not altered (but even "reinforced”) by the better-than-expected macroeconomic data published in recent weeks (i.a. GDP and inflation). He justified his stance i.a. by the not growing wage pressure, lower dynamics of unit labour costs, low level of core inflation, and external (i.e. remaining beyond the control of monetary policy) nature of CPI inflation increase. In addition, the NBP Governor noted that PLN strengthening observed in the last year was conducive to monetary policy tightening.

Status quo in monetary policy

The above-quoted remarks of the NBP Governor indicate that the MPC bias in monetary policy has not substantially changed compared to the one presented after the November meeting. At the same time, they support our forecast of NBP rates, in which, given a moderate wage pressure and inflation staying below target, the MPC will leave interest rates unchanged until November 2018.

In our view, the statement after the MPC meeting and remarks of the NBP Governor are neutral for PLN and bond yields.