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MPC not worried about surging inflation

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: inflation increase visibly above the MPC target possible but temporary

At the conference after the MPC meeting, A. Glapiński informed that the recorded in April sharp increase in inflation from 1.7% YoY in March to 2.2% (see MACROpulse of 15/5/2019) has surprised the MPC members. He pointed out that the acceleration in the price growth in April resulted from factors not impacted by the domestic monetary policy, such as faster growth of the prices of food, fuels and some services (e.g. garbage removal fees). In his opinion, the increase in inflation to a level close to 3.5% (the upper limit of the tolerance band) is possible but will be temporary. He also believes that a sharp increase of core inflation in April (we estimate that it amounted to 1.8% YoY vs. 1.4% YoY in March) is not a signal of a new upward trend for this indicator.

The NBP Governor also said that the data on the April inflation "have not greatly dented his confidence about a strong likelihood of the stabilization of NBP interest rates until the end of term of the Monetary Policy Council” (beginning of 2022). In his view, one of the main arguments for the stabilization of interest rates is the downturn in Poland's major trading partners, including Germany.

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.

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.