MPC statement without substantial changes
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 noted that the economic outlook remained favourable, and GDP growth would continue at a relatively high level in the coming years. The Council stated that: “however, uncertainty about the scale and persistence of the slowdown abroad and its impact on domestic economic activity has increased”. The Council also expects that "after a temporary rise in 2020 Q1, inflation will stay close to the target in the monetary policy transmission horizon” (2.5% +/- 1 pp).
Sharp minimum wage growth will not result in a significant increase of inflation
The conference after the MPC meeting was dominated by the topic of a sharp increase of minimum wage from PLN 2250 now to PLN 4000 in 2023, announced by the Law and Justice during the weekend. According to the NBP Governor, A. Glapiński, this increase will be neutral for the GDP dynamics in the monetary policy transmission horizon (2019-2020). In his view, the impact of higher minimum wage on inflation will be “minimal” and will amount to 0.1 percentage point in 2020 and in 2021 this impact will be “close” to the one expected in 2020. In the opinion of the NBP Governor, the increase of the minimum wage implemented in accordance with the profile announced by PiS will be “a marginal event from the inflation perspective”. In his view, in the light of the results of the NBP analyses of the effects of an early increase of the minimum wage, the companies will react to its growth mainly by cutting non-labour costs and by increasing productivity. The NBP Governor also informed that the announcement of sharp increases of the minimum wage has not made more hawkish the stance of those MPC members who supported interest rate hikes at the July meeting (K. Zubelewicz and E. Gatnar) or whose earlier remarks pointed to their relatively high aversion to inflation (Ł. Hardt).
NBP expects that inflation will peak in Q1 2020
Referring to current short-term inflation forecasts prepared at the NBP, A. Glapiński informed that they indicated an increase in inflation to 3.5% YoY (2.6% for core inflation excluding energy and food prices) in Q1 2020 and then its marked decline to 2.8% (2.4%) in Q2 which would continue into Q3 (the level of CPI inflation anticipated by the NBP in July 2020 will amount to 2.3% and of core inflation to 2.2%). The inflation scenario outlined by the NBP Governor is close to our forecasts (see MACROmap of 9/9/2019). They indicate a sharp decrease of inflation in H2 2020, mainly due to the high base effects for food prices. Present at the conference MPC members, E. Łon and R. Sura, also signaled that the inflationary risk in the monetary policy transmission horizon was limited.
Interest rates unchanged at least until the end of 2020
Today's remarks of A. Glapiński support our scenario, in which NBP interest rates will remain unchanged at least until the end of 2020. The expected by us monetary easing by the ECB (see MACROmap of 9/9/2019) is in line with this forecast. In our view, the text of the statement after the MPC meeting and the remarks of the NBP Governor at today's conference are neutral for PLN and bond yields.
