MPC: pro-inflation impact of electricity price growth will be limited by falling oil prices

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). In the statement after the meeting, the Council repeated the view that "the current level of interest rates is conducive to keeping the Polish economy on a sustainable growth path and maintaining macroeconomic stability”. The Council also emphasized that "current information points to a relatively favourable outlook for economic conditions in Poland, although a gradual slowing in GDP growth is expected in the years ahead”. In the Council's assessment, "in 2019 inflation might be increased by rising energy prices”, however "the scale of energy price growth in 2019 will probably be limited by the fall in oil prices seen in recent months”. The Council repeated the view that "in the monetary policy transmission horizon inflation will remain close to the target”.

NBP Governor: motion for interest rates hike was "exotic”

At the conference after the MPC meeting, A. Glapiński repeated the view concerning interest rates outlook. He can see no reason now for any hikes in 2019 and in his view "it is probable that rates will not increase in 2020”. He emphasized that despite the expected acceleration in price growth, inflation will continue to be "very low”. In this context, the NBP Governor regarded the motion for interest rates hike submitted at the November MBP meeting as "exotic”. In the opinion of the NBP Governor, the surprising falls of the prices of oil and of some other agricultural commodities, observed in recent months, as well as the deterioration of business climate in the German economy, conducive to slowdown in economic growth and limitation of inflationary pressure in Poland, are additional arguments in favour of keeping interest rates stable. The view on the need to maintain stable interest rates in 2019 was shared by present at the conference MPC member R. Sura.

Present at the conference MPC member G. Ancyparowicz signaled that both the economic growth and the inflation in 2019 might be higher than anticipated in the November inflation projection. Among possible reasons for higher inflation she indicated annual changes of weights in the GUS-calculated inflation basket and changes in VAT rates to be imposed in 2019. In her opinion, higher than projected economic growth may result from the fact that investment dynamics will be higher than anticipated in the projection. Consequently, the expected in the projection GDP growth in 2019 at a level below 4% may be viewed as pessimistic scenario.

NBP rates unchanged until March 2010

Today's remarks of A. Glapiński are consistent with our scenario, in which NBP interest rates will remain unchanged until the end of 2019 (first hike by 25 bp in March 2020). Current market expectations point to first interest rate hike in Q2 2020.

In our view, today's remarks of the NBP Governor are neutral for PLN and bond yields.

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