Status quo in monetary policy

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). The bias of the Council's statement has not substantially changed compared to the October statement. The MPC maintained the view that "given the available data and forecasts, the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic balance”. The Council again pointed to the risk of "a fall in commodity prices” as the main source of uncertainty for price developments in Poland.

GDP projection revised downwards, inflation path without major changes.

As we expected, the inflation path between 2016-2017, forecasted in the November projection, has not substantially changed compared to the scenario presented in the July projection. In accordance with the November projection - prepared on the assumption of unchanged NBP interest rates - inflation will run with 50% probability between -0.7 - -0.6% in 2016 (vs. -0.9 - -0.3% in the July projection), 0.5-2.0% in 2017 (vs. 0.3-2.2%), and 0.3-2.6% in 2018 (the same as in the July projection). This means that according to the projection, inflation will continue to run significantly below the MPC inflation target (2.5%) in the policy-relevant horizon and will not attain this target before 2019. At the same time, the forecasted GDP growth rate in 2016 was slightly lowered and slightly revised upwards between 2017-2018. In accordance with the November projection, GDP dynamics will run with 50% probability between 2.5-3.4% in 2016 (vs. 2.6-3.8% in the July projection), 2.6-4.5% in 2017 (vs. 2.4-4.5%), and 2.2-4.4% in 2018 (vs. 2.1-4.3%).

Limited significance of US elections for situation in Poland

During the press conference Adam Glapiński expressed the view that the projection was the fundamental for MPC members' formulating expectations concerning the economic situation in Poland. In this context, it is worth noting that in July all the MPC members expected higher GDP growth in 2016 from that presented in the July projection (central path at 3.2% YoY). According to the NBP Governor, the currently observed slowdown in growth was related "only and solely” to slower inflow of EU finds. In his view an increased absorption of EU funds, and consequently acceleration of investments, can be expected at the turn of 2016 and 2017. The MPC members expect that GDP growth may have slightly decreased in Q3 (vs. 3.1% YoY in Q2) and will stand at ca. 3% in Q4. The NBP Governor repeated his assessment from the month before that, despite the expected increase in inflation and acceleration of economic growth next year, in his view, the most likely scenario was the stabilization of NBP interest rates in 2017.

During the press conference, Adam Glapiński informed that in his view the today's result of the US presidential elections pointing to D. Trump's victory was currently of a limited significance for the Polish economy. A precise assessment of the scale of this impact will be possible to assess at a later date when it is known to what extent D. Trump's election postulates will be implemented.

Risk to our NBP interest rates scenario

Today's remarks of A. Glapiński pointing to a low likelihood of interest rates increase in 2017 suggest a downside risk to our forecast of NBP rates in 2017. However, we maintain the view that the expected by us acceleration of economic growth in H1 2017, combined with increase in inflation to visibly positive levels and real NBP reference rate drop to a level close to zero, will make the MPC start a monetary tightening cycle in July 2017 and increase the NBP reference rate by 50bp in total in 2017.

The main risk to our forecast continues to be the likely extension by the ECB of the expanded asset purchase program. If such decision is taken at the December ECB meeting, the likelihood of interest rate hikes in Poland in 2017 will markedly decrease.

The press release after the MPC meeting and today's remarks of the NBP Governor are neutral for PLN and the debt market, we believe.

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