NBP Governor extends the horizon of stable interest rates

MPC expects slower GDP growth

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”. 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 lower than in the second half of 2017.” It shows that the Council expects a slight deceleration of GDP growth in the coming quarters.

NBP Governor extends the horizon of stable interest rates

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. In his view presently there are "no data” pointing to the need of hiking interest rates. He also signaled that the period of stable interest rates "may be extended into 2019”. In our view, this statement may be interpreted as the extension of the horizon of stable interest rates expected by the NBP Governor and thus lower likelihood of their hikes in both 2018 and in Q1 2019. Present at the conference MPC member, E Gatnar, so far showing a relatively high inflation aversion, commented on the flash estimate of the December inflation (2.0% YoY vs. 2.5% in November), saying that "perhaps a process has started to develop which will result in the lowering of the inflation path” in the March inflation projection. Interestingly, he also stated that a situation where the expected inflation exceeds the target (2.5%) but stays below the upper tolerance band (3.5%) does not require a monetary policy response. In turn, another MPC member, J. Kropiwnicki, emphasized that "wage growth has not kept pace with increase in productivity”, which points to no need of monetary tightening”.

MPC bias gets more dovish

The above-quoted remarks of the NBP Governor and MPC members indicate that the MPC has slightly relaxed its bias in monetary policy compared to December. They support our revised forecast of NBP rates, in which, given a moderate wage pressure and the expected in the coming quarters gradual decrease in inflation to a level significantly below the inflation target (see MACROmap of 11/12/2017), 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 slightly negative for PLN and bond yields.