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Anticipated inflation increase in July will drive MPC’s bias

Interest rates remain unchanged

Today, the Monetary Policy Council decided to maintain the NBP reference rate at 5.75%. The MPC’s decision is consistent with our forecast and the market consensus. In today's press release, the Council reiterated its expectations regarding short-term inflation outlook. According to the MPC “in 2024 Q2 annual CPI growth will run at the level consistent with the NBP inflation target”. Thus, the Council continues to believe that while recently inflation has remained close to the MPC's inflation target of 2.5%, this trend will be short-lived. The press release made a slight revision to last month’s wording, indicating that “should energy prices be raised, inflation will increase in the second half of 2024” (whereas the May statement noted that inflation “might increase significantly”). Furthermore, the Council maintained its assessment that the current economic activity growth – “despite some acceleration” – remains relatively low, which helps limit the growth rate of consumer goods and services prices.

Anticipated inflation increase in July will drive MPC’s bias

The Council also maintained its assessment regarding the adequacy of the current level of interest rates. According to the MPC, “the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term”, and “further decisions of the Council will depend on incoming information regarding prospects for inflation and economic activity”. In our opinion, the expected scale of inflation increase in the coming months, primarily due to the sharp rise in electricity prices in July that we anticipate, will be crucial for the tone of the MPC's post-meeting press releases and members' comments. We stand by our assessment that the challenging short-term inflation outlook will drive the MPC’s decision not to cut interest rates in the coming quarters. We will present a more detailed discussion of our revised inflation forecast, considering a lower starting point (see MACROmap of 03/06/2024) and the latest information on the scale of electricity price hikes, in the upcoming MACROmap. 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.