Negative real interest rates do not change MPC bias

GDP growth in 2019 may be higher than expected in the March NBP projection

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 “GDP growth this year may turn out to be slightly higher than expected in the March projection”. 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: no need to worry about negative interest rates

At the conference after the MPC meeting, the NBP Governor A. Glapiński informed that both the economic growth rate and inflation in 2019 are likely to be higher than expected in the March NBP projection. In his opinion, inflation may increase to a level close to 3% towards the end of 2019 and then decrease to a level slightly higher from that expected in the March projection. Present at the conference MPC members, E. Gatnar and R. Sura, presented similar expectations concerning short-term inflation profile to those voiced by the NBP Governor.

The issue of the recorded in recent months decline in real interest rates (the NBP reference rate, the money market rate and interest rate of some bank deposits) to the negative level has also been raised at the conference. According to the NBP Governor, crucial for assessing the impact of real interest rates on the economy are changes in real interest rate of corporate loans, which remains at a positive level despite the decline. In his opinion, the increase in lending in the segment of corporate loans is not excessive, which shows that real interest rates are at an appropriate level.

Looking for the source of the acceleration in investments

The NBP Governor has also commented on the surprisingly good data on the dynamics of corporate investments in Q1 2019 (see MACROmap of 3/6/2019). In his view, the sharp acceleration in corporate investments was kind of a paradox because it occurred despite unfavourable external conditions (strong downturn in Poland’s major trading partners). According to A. Glapiński, it is now hard to assess why corporate investments growth has strongly accelerated in Q1 2019 and it will be the business survey results that will help to solve this puzzle.

The NBP Governor repeated his view concerning short-term outlook for interest rates. In his opinion, there are no grounds now to either hike or cut interest rates. In his view “it may so happen” that rates will remain stable until the end of the Monetary Policy Council term of office (the beginning of 2022). He repeated the view expressed last month that one of the main arguments for the stabilization of interest rates is the downturn in Poland's major trading partners, including Germany, which is conducive to lower inflation in Poland.

Downside risk to our forecast of interest rates in 2020

Today's remarks of A. Glapiński support our scenario, in which NBP interest rates will remain unchanged until the end of 2019. The deterioration in global economic outlook recorded in recent weeks (see MACROmap of 3/6/2019) poses a downside risk to our forecast in which the first hike (by 25 bp) will take place in March 2020. In the next MACROmap we will present our latest macroeconomic scenario for Poland.

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.