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Inflation impulse lurks around the corner?

Statement after the MPC meeting with no significant 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”. Like the month before, the Council emphasized that the outlook for economic conditions in Poland remained favourable, however, in the quarters to come, there would probably be a gradual slowdown in GDP growth. The Council repeated the view that "in the monetary policy transmission horizon inflation will remain close to the target” (2.5% +/- 1 pp).

NBP Governor: deterioration of global sentiment makes room for interest rate hikes smaller

At the conference after the MPC meeting, A. Glapiński repeated his view on the impact of the government-announced fiscal package (so-called "five”) on the economic situation in Poland. He believes that the fiscal stimulus will be implemented at the right moment and at the right level from the point of view of the macroeconomic equilibrium and that the threshold for the budget deficit at 3% of GDP "will be far from being reached”. In his opinion, the impulse resulting from the package for GDP growth will be "significant” while pro-inflation impulse will be "very low”. The NBP Governor repeated the view voiced in March that "the package will not affect the policy of interest rates”, which, in his opinion, may be left unchanged until the end of the MPC term (early 2022). According to A. Glapiński, the deterioration of global sentiment, conducive to lower inflation in Poland's economic environment, is an important factor justifying no need for tightening the monetary policy.

Present at the conference MPC member, K. Zubelewicz, emphasized that the view on the scale of the inflation effects of the fiscal package voiced by some MPC members during the discussion at today's meeting was different from that of the NBP Governor. In their opinion it may contribute towards increasing inflation by 1 pp, however, taking into consideration the expected limited wage pressure and the forecast of oil prices, the fiscal package will not result in inflation shooting above the tolerance band (3.5%). According to K. Zubelewicz "the inflation impulse lurks around the corner”

NBP rates unchanged until March 2020

Today's remarks of A. Glapiński support our scenario, in which NBP interest rates will remain unchanged until the end of 2019. We maintain our forecast, in which their first hike (by 25 bp) will take place in March 2020. Our scenario is supported by the remarks of MPC members recorded in recent weeks and pointing to a growing likelihood of the monetary policy tightening in 2020 (see MACROmap of 1/4/2019).

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.