MPC sees signs of recovery in investments

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). 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”. Like in April, the Council indicated in its statement that due to "fading effects of the past increase in global commodity prices, with only a gradual rise in domestic inflationary pressure stemming from improving domestic economic conditions (…) the risk of inflation persistently running above the target in the medium term is limited”. Referring to the flash estimate of GDP in Q1 2017 (see MACROpulse of 16/5/2017), the Council also noted that the improvement observed in industry and construction might point to a gradual recovery in investment demand.

PLN rate conducive to equlibrium

During the press conference the NBP Governor, Adam Glapiński, emphasized that the sharp acceleration in economic growth recorded in Q1 had occurred in the conditions of continuing macroeconomic equilibrium, including, in particular, moderate wage increases. He informed that the situation in the labour market was currently in the focus of attention of MPC members and available data did not point to increase in wage pressure. He repeated the view presented earlier that interest rates were likely to remain unchanged until the end of 2018. He indicated, however, that some MPC members might be in favour of starting the tightening cycle in H2 2018. The remarks of the NBP Governor lead to the conclusion that most MPC members share the view pointing to a low probability of interest rate hikes before the end of 2018. A. Glapiński also stated that the current level of PLN rate was conducive to macroeconomic equilibrium. This signals that the marked appreciation of PLN recorded in recent weeks has not substantially impacted the short-term outlook for interest rates.

Rate hikes no sooner than towards the end of 2018

Today's remarks of A. Glapiński indicate that MPC bias in monetary policy has not substantially changed compared to the one presented after the April meeting. At the same time they support our forecast of NBP rates. We expect that inflation will not change in Q2 compared to Q1 and will amount to 2.0%. In H2 2017 it will gradually decrease to reach 1.7% in Q4. We forecast that annual average inflation in 2018 will run at 1.5%. Main upside risks to our forecast are oil price fluctuations and the frost which occurred in Poland in recent weeks. In the coming months it will be conducive to higher food prices, fruit prices in particular. However, we believe that their impact on total inflation will be limited. We expect that in the conditions of inflation staying significantly below the target, the MPC will leave interest unchanged until November 2018.

In our view, the MPC statement and remarks of the NBP Governor are neutral for PLN and bond yields.

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