Does the NBP Governor identify himself with dovish comments of MPC members?

Interest rates remain unchanged

Today, the Monetary Policy Council has taken a decision to keep interest rates unchanged (with the NBP reference rate standing at 6.75%). The Council’s decision was consistent with market consensus and our forecast. In the press release following the meeting, the Council pointed to the inflation drop in April, and once again noted that “despite weakening demand growth, the level of inflation was still affected by a significant increase in costs resulting from an earlier strong surge in global commodity prices and disruptions in global value chains that was passed through to consumer prices.” The Council has repeated that the decreasing commodity prices and a slower growth of producer price index together with weaker economic activity “will support a decline in domestic CPI inflation in the coming quarters.” Like in April, also this time the Council concluded that “given strength and persistence of the recent shocks that remain beyond the impact of domestic monetary policy, inflation’s return to the NBP inflation target will be gradual.”

The likelihood is growing that the end of the hiking cycle will be signalled

The Council has repeated that “the earlier strong monetary policy tightening undertaken by NBP will lead to a decline in inflation in Poland towards the NBP inflation target.” The Council has concluded that inflation will be driven down by the weakening of the external economic conditions, a decline in commodity prices, and a weaker GDP growth (including consumption) amid a significant decrease in credit growth. The Council has once again declared that its “further decisions (…) will depend on incoming information regarding perspectives for inflation and economic activity.” We have concluded that the text of the message suggests, like in the previous months, that the Council still finds high inflation to be of secondary importance, and that preventing the economic growth from slowing down too much in the coming quarters is still the main objective of the monetary policy.

We believe that the likelihood of the Council signalling the end of the hiking cycle is growing as the inflation is continuing to fall. This change, reflected in a clear change in the tone of the message released after the meeting and in the NBP Governor’s statements, may take place in June 2023, but it will depend on how much the inflation will fall between April and May.

Does the NBP Governor identify himself with dovish comments of MPC members?

We maintain our scenario in which the NBP interest rates will not change by the end of 2023. It is consistent with our scenario which says that inflation will follow a mild downward trend in the months to come, reaching 7.0% YoY in December 2023. In our opinion, the room for reducing interest rates in H2 2023 will be highly limited amidst the expectations for recovery in the economic activity, which will be even stronger in 2024, and will drive the wage and inflation pressure up. Our opinion is supported by the results of the NBP’s March projection of inflation, which indicate that inflation will not return to the target within the projection horizon, i.e. by the end of 2025. Nonetheless, in the last couple of weeks, there were statements made by some of the MPC members (I. Dąbrowski, G. Masłowska and H. Wnorowski), according to which interest rates could be reduced in H2 2023. Given this context, it is going to be important whether (and how) the NBP Governor will address those statements in tomorrow’s press conference following the MPC meeting. In our opinion, should A. Glapiński suggest that the MPC may begin to reduce interest rates as early as in Q4 2023, it will have a negative impact on the PLN and yields on Polish bonds.

In our opinion, the press release following today’s meeting of the Council will be neutral for the PLN and for the yields on bonds.