Press release from MPC meeting brings no significant changes
Today, the Monetary Policy Council decided to cut interest rates by 25bps (with the NBP reference rate now standing at 5.75%). This move was consistent with the market consensus and, at the same time, more modest than our forecast (of 50bps).
The wording of the press release following today's meeting did not change significantly relative to the document published in September. The Council, similarly to a month ago, noted the weakening global economic conditions as well as the persisting uncertainty about the activity outlook in the largest economies. The MPC also noted that year-on-year producer prices in Poland had fallen. In the Council’s opinion, this confirms that external supply shocks are fading and the cost pressure is easing. This, coupled with the activity growth decline, will drive inflation down in the upcoming quarters. The Council also observed (similar to last month) that inflation expectations were decreasing, contributing, in the Council’s opinion, to an increase in the restrictiveness of monetary policy.
However, the fragment mentioning "a faster return of inflation to the NBP inflation target" due to lower-than-expected demand pressure was removed from the statement. It was replaced with a passage emphasizing "weak demand and cost pressure in the economy as well as reduced inflation pressure amongst the weakened external economic conditions." However, this adjustment does not significantly change the tone of the press release.
Another "adjustment" of interest rates
Similar to last month, the Council today referred to the interest rate cut as an "adjustment". In September, the MPC highlighted that such an adjustment “will be conducive to" meeting the NBP's inflation target in the medium term. However, in today's commentary, this adjustment was described as being "consistent with" meeting the NBP inflation target in the medium term.
The short-term monetary policy outlook remains uncertain. The term "adjustment" as used by the MPC to describe the interest rate cut would signal limited room for further monetary policy easing. A reduced pace of policy easing aligns with statements made by the NBP President two weeks ago (see MACROmap of 25/09/2023). He remarked that after the monetary policy adjustment in September, the room for further interest rate cuts has significantly diminished. Another factor further limiting the room for further interest rate cuts is the substantial upside risk to our short-term inflation forecast and thus also the expected rate of disinflation in the upcoming months. This risk is attributable to the recent depreciation of the PLN exchange rate and a high likelihood of a surge in fuel prices post the parliamentary elections. The inflationary effect of the increase in the EURPLN rate, observed after the MPC’s September meeting, likely supported the argument for moderating the pace of monetary policy easing.
The NBP President’s press conference scheduled for tomorrow will shed more light on the outlook for interest rates. We will present our revised scenario for interest rates and the PLN exchange rate in Monday's MACROmap.
In our opinion, the wording of the press release following today’s MPC meeting is slightly positive for the PLN exchange rate and yields on bonds.
