MPC continues to highlight inflation outlook uncertainty

Today, the Monetary Policy Council decided to maintain the NBP reference rate at 5.75%, a decision is consistent with our forecast and the market consensus. In the press release following today’s meeting, the Council reiterated its assessment that “in the coming months annual CPI growth will run at the level consistent with the NBP inflation target”, citing the reintroduction of a 5% VAT on food as a factor driving up inflation. The MPC once again highlighted the uncertainty surrounding the short-term inflation outlook. According to the Council, “should energy prices be raised, inflation might increase significantly in the second half of 2024" and “over the medium term, demand pressure in the economy will be stimulated by wage growth, stemming i.a. from wage increases in the public sector”. Thus, the press release suggests that, similar to last month, the MPC believes the anticipated trend of inflation nearing the Council's target of 2.5% in the coming months will only be temporary.

Stable rates amid inflationary environment

The wording of the press release issued after the MPC meeting aligns with our scenario of stable interest rates until the second half of 2025. This scenario is supported by the rise in inflation we anticipate, which, after hitting a local low of 1.9% YoY in March, is expected to climb to 3.8% in July and remain above the upper band for deviations from the inflation target (3.5%) until June 2025 (we will discuss our revised inflation forecast in the upcoming MACROmap). In the coming months, we anticipate that MPC members will highlight the high likelihood of an inflation spike in the latter part of the year driven by a stronger economic recovery and the end of protective measures to stabilise energy prices. The challenging short-term inflation outlook is the main reason why the MPC might refrain from cutting rates. In addition, some MPC members may interpret the government coalition’s motion to hold NBP Governor Adam Glapiński accountable before the State Tribunal as a challenge to the NBP's independence, which might prompt them to adopt a more inflation-averse stance. Given the expected monetary policy easing in the Eurozone, set to begin in June, our scenario of stable interest rates in Poland in the coming quarters is consistent with the predicted gradual appreciation of the PLN. Tomorrow, A. Glapiński will hold a press conference which will probably shed more light on the monetary policy outlook.

In our opinion, the wording of the press release following today’s MPC meeting is neutral for the PLN exchange rate and yields on bonds.

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