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Growing probability of stable NBP rates until the end of 2018

MPC notices recovery in investments

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). In the statement after the meeting, the Council repeated the view that "inflation will remain close to the inflation target over the projection horizon” and "the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic stability”. Like in the previous month, a conclusion concerning short-term prospects for economic growth has also been included in the statement: "favourable economic conditions in the Polish economy will continue in the next quarters. Yet, GDP growth will probably be slightly lower than in the second half of 2017.” It shows that the Council expects a slight deceleration of GDP growth in the coming quarters. In addition, it results from the statement that the Council attributes the sharp acceleration in investments growth in Q4 2017 mainly to the recovery in public investments which is in line with our view (see MACROmap of 5/2/2018).

Ł. Hardt relaxes his anti-inflation rhetoric

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. At the same time, the NBP Governor tried to clarify his statement from the month before when he signaled that the period of stable interest rates "may be extended into 2019”. Today he emphasized that in his view the rates would remain stable for a longer period of time "facts and circumstances allowing”.

According to the NBP Governor, the increase in wages is not excessive compared to the dynamics of labour productivity, which signals a moderate inflationary risk. Referring to the situation in the labour market, present at the conference MPC member, Ł. Hardt, stated that the impact of higher unit labour costs on inflation was limited. This view is in line with the results of our analyses (see MACROmap of 29/1/2018). He added that, in his opinion, the probability of stable NBP interest rates until the end of 2018 was currently higher than few months ago. In our view, this statement points to a marked change in his monetary policy bias to a more dovish one. This change is noteworthy considering that his statements have so far showed high – compared to other MPC members – aversion to inflation.

Rising oil prices are the main risk to forecast of NBP rates

The above-quoted remarks of the MPC members support our forecast of NBP rates, in which, given a moderate wage pressure and the expected in Q4 decrease in inflation to a level significantly below the inflation target (see MACROmap of 5/2/2018), the MPC will leave interest rates unchanged until the middle of 2019. The main risk to our inflation scenario and – indirectly – to the forecast of NBP interest rates is the significant increase in oil prices that was recorded in recent weeks, signaling higher risk of secondary inflationary impulses related to increase in energy prices.

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