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Dovish stance of major central banks does not change the MPC bias

MPC statement without substantial changes

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 "the current level of interest rates is conducive to keeping the Polish economy on a sustainable growth path and maintaining macroeconomic stability". The Council also noted that the economic outlook remained favourable, and GDP growth would continue at a relatively high level in the coming years. The Council repeated the view that "in the monetary policy transmission horizon inflation will remain close to the target" (2.5% +/- 1 pp).

July NBP projection: inflation and economic growth rate revised upwards

As we expected, the inflation path in the 2019-2020 period, forecast in the July projection, has - compared to the March projection - been revised upwards The projection forecasts further slight increase in core inflation and higher dynamics of energy prices (the effect of the assumed deregulation of energy prices). In accordance with the projection - prepared on the assumption of unchanged NBP interest rates - inflation will run with 50% probability between 1.7% - 2.3% in 2019 (vs. 1.2 – 2.2% in the March projection), 1.9% - 3.7% in 2020 (vs. 1.7 - 3.6%), and 1.3% - 3.5% in 2021 (vs. 1.3% - 3.5%). This means that, according to the projection, inflation in the 2019-2021 will run close to the MPC inflation target. As we expected, the July projection upheld the downward trajectory of GDP growth rate in subsequent years but revised it upwards. The GDP growth rate forecast in the projection will run with 50% probability between 3.9% - 5.1% in 2019 (vs. 3.3% - 4.7% in the March projection), 3.0% - 4.8% in 2020 (2.7% - 4.6%), and 2.4% - 4.3% in 2021 (vs. 2.4%-4.3%).

Dovish stance of major central banks does not change the MPC bias

At the conference after the MPC meeting, the NBP Governor A. Glapiński indicated that the latest projection supported the policy of leaving interest rates at the current level. In his view, interest rates will remain stable until the end of 2021. A. Glapiński pointed out that inflation will stay within the tolerance band (2.5% +/- 1 percentage point) in the projection horizon and the MPC should not react nervously to temporary deviations from the centre of this band but should pay attention to long-term tendencies.

Referring to the marked change in the stance of major central banks to a more dovish one, the NBP Governor said that the MPC was prepared for that, as such change in bias had already been signaled earlier in the central banks’ informal communication. In this context he indicated that in Poland there was a room for impacting the macroeconomic situation through both monetary and fiscal policy “if there was such need". However, the MPC Chairman pointed out that currently “to maintain stable interest rates is the most appropriate policy". Present at the conference MPC members G. Ancyparowicz and Ł. Hardt presented similar views to those voiced by the Chairman.

Interest rates unchanged at least until the end of 2020

Today's remarks of A. Glapiński and the results of the July inflation projection support our scenario, in which NBP interest rates will remain unchanged at least until the end of 2020. The expected by us monetary easing by the ECB (see MACROmap of 3/7/2019) is in line with this forecast. In our view, the text of the statement after the MPC meeting and the remarks of the NBP Governor at today's conference are neutral for PLN and bond yields.