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The MPC has kept interest rates unchanged

The Monetary Policy Council has decided today to keep interest rates unchanged (the NBP reference rate is 6.75%). The decision of the MPC was consistent with our forecast and market consensus. It did not come as a surprise either in light of statements by the NBP governor and some MPC members who had signalled their reluctance to tighten monetary policy, despite stubbornly high inflation.

The MPC expects inflation to fall as supply shocks expire and economic activity weakens

In the press release after its meeting, the Council highlighted the decline in inflation in March, but they noted again that what keeps pushing inflation up is the "pass-through effect of the significant cost increases on consumer goods prices, associated with the earlier strong rise in global commodity prices and disruptions in global supply chains’. However, it was stressed that, for several months now, commodity prices have been declining and so has the price growth rate of industrial output sold, which, combined with the weakening economic activity, ‘will (...) make the domestic price growth of consumer goods slow in the following quarters’. As in March, the Council considered that ‘due to the magnitude and persistence of the impact of the current shocks, which are beyond the influence of domestic monetary policy, the return of inflation to the NBP's inflation target will be gradual’. The MPC once again declared that their ‘further decisions would depend on incoming information regarding perspectives for inflation and economic activity’.

The Council accepts prolonged higher inflation

The Council maintained its earlier assessment that ‘the previously strong tightening of the NBP's monetary policy will lead to a decline in inflation in Poland towards the NBP's inflation target’. However, taking into account the results of the March NBP projection indicating a prolonged persistence of inflation significantly above the NBP target and going well beyond the monetary policy impact horizon (see MACROpulse of 08/03/2023), this signals that high inflation is still of secondary importance for the Council and the main objective of monetary policy is to prevent an excessive slowdown in economic growth in the coming quarters. We maintain our assessment that the likelihood of the Council returning to interest rate hikes in the coming months remains low. We continue to believe that the end of the rate hike cycle – signalled by the Council and reflected in the change in tone of the press release after the meeting and the NBP governor’s statements – may occur as early as Q2 2023 and will be determined by the rate of inflation decline in the next two months.

Interest rates unchanged until the end of 2023

We maintain our forecast that NBP interest rates will remain unchanged until the end of 2023. This is consistent with our scenario that inflation reached its local maximum in February 2023 and will follow a mild downward trend in the following months to reach 7.0% YoY in December 2023 (see MACROmap of 20/03/2023). Tomorrow’s press conference of the NBP governor will tell us more about the short-term outlook for interest rates.

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