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MPC still in a wait-and-see mode

Interest rates remain unchanged

Today, the Monetary Policy Council (MPC) decided to maintain the NBP reference rate at 5.75%. The MPC’s decision is consistent with our forecast and the market consensus. The high probability of the MPC making this decision was indicated in the press release following their November meeting. The statement cited uncertainties surrounding future fiscal and regulatory policies and their impact on inflation, as well as recent adjustments to the NBP interest rates as key reasons for maintaining rate stability. These arguments were reiterated in today’s press release.

Similar to last month, the Council noted a decrease in annual producer prices, which, according to the MPC, confirms the fading of most external supply shocks and a reduction of cost pressures. The Council believes that declining producer prices, coupled with low economic activity growth, will support a further decline in consumer price inflation in the coming quarters. The MPC also modified the sentence discussing the impact of the PLN exchange rate on inflation, shifting from a speculative to a declarative stance, and noted that the decrease in inflation is supported by the appreciation of the PLN exchange rate, which is consistent with the fundamentals of the Polish economy.

First interest rate cut projected for Q4 2024

In line with our revised forecast, the first interest rate cut of 25bps is expected in November 2024. Our scenario assuming stable interest rates in the coming quarters is supported by the NBP's November inflation projection. This projection suggests that, given the accelerating economic rebound, inflation will not return to the target level before the end of 2025 (see MACROpulse of 8/11/2023). We believe that short-term upside risk factors for this projection, especially the high likelihood of the reinstatement of a 5% VAT rate on basic food products from January 2024, outweigh downside risk factors, including the anti-inflationary effects of the PLN appreciation recorded in October and November. Moreover, in our opinion, the outcome of the parliamentary elections has altered the MPC's reaction function, increasing its aversion to inflation. Therefore, in the context of inflation exceeding the target, the MPC will not be inclined to reduce interest rates in the coming quarters. Our interest rate scenario for Poland aligns with the anticipated trajectory of the ECB's monetary policy, which is projected to begin easing the policy in September 2024 (see MACROmap of 4/12/2023). Tomorrow, A. Glapiński will hold a press conference which will probably shed more light on the monetary policy outlook.

In our opinion, the wording of the press release following today’s MPC meeting is neutral for the PLN exchange rate and yields on bonds