MPC waits till March

No major changes in the tone of the press release following the MPC meeting

Today, the Monetary Policy Council has taken a decision to keep the interest rates unchanged (with the NBP reference rate standing at 5.75%). The MPC’s decision was consistent with market consensus and our forecast. The press release issued after December’s meeting, with the MPC citing the uncertainty regarding future fiscal and regulatory policies and their impact on inflation as well as the adjustments to NBP interest rates made in the past months as the main reasons for stabilizing the interest rates, indicated that such a decision on the part of the MPC was highly likely. In today’s press release, the said passage has been slightly modified, though. The reference to the interest rate cuts made over the last couple of months has been removed from the text, while “the pace of economic recovery in Poland” as a factor increasing the uncertainty associated with inflation developments in the quarters to come has been added.

Like in the preceding month, also today’s press release contained a reference to the year-on-year drop in producer prices in Poland, which in the Council’s opinion confirmed the fading of most external supply shocks and a reduction of cost pressures. The Council has concluded that the drop in producer prices combined with low economic activity growth will be conducive to a further inflation decline in the quarters to come. A new fragment was added in this context, though, which reads that “in the coming months, annual CPI growth is likely to fall significantly, while the decline in core inflation will be slower.”

Rate cuts to come in March?

We forecast the headline inflation to fall below the inflation target of 2.5% YoY and stay there between March and May 2024 (inflation outlook will be discussed in greater detail in our next MACROmap). In our opinion, such relatively low inflation figures, which result primarily from keeping the 0% VAT on non-processed food and freezing the prices of energy for households will prompt the MPC to resume the monetary policy easing cycle. We believe that the MPC will cut interest rates in March and July 2024, each time by 25bp. However, if the procedure aimed at bringing the NBP Governor A. Glapiński before the State Tribunal is initiated, this will pose a risk factor to our interest rate forecast. Potential for further rate cuts is limited given the expected inflation rise in H2 2024. We believe that a similar scenario will be outlined in the NBP’s March projection for inflation. Consequently, the MPC will be reluctant to cut interest rates in the quarters to come with inflation staying significantly above the target. Our scenario for Polish interest rates is consistent with the expected scenario for the ECB’s monetary policy, which is believed to be eased for the first time in September 2024. A. Glapiński’s tomorrow’s press conference will probably tell us more about the outlook for the monetary policy.

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