Interest rates remain unchanged
Today, the Monetary Policy Council has decided to keep the interest rates unchanged, with the NBP reference rate standing at 3.75%. The MPC’s decision was consistent with both our forecast and market expectations. The tone of the press release did not change much compared with September. The Council again noted that the outlook for global economic activity and inflation remains uncertain, particularly due to the conflict in the Middle East, and emphasised the importance of global commodity prices and inflation for the outlook for the Polish economy. It also reiterated its assessment that further decisions will depend on incoming information regarding prospects for inflation and economic activity.
The Council noted that CPI inflation rose to 4.0% YoY in September, from 3.4% in August, pointing out, as it had a month earlier, that this was driven primarily by faster fuel price inflation. At the same time, the press release noted that inflation excluding food and energy prices had most likely eased slightly, whereas in the September press release the Council had estimated that it had risen in August. This means that, despite the marked rise in headline inflation, the Council is not signalling an intensification of broad-based inflationary pressures.
MPC still stops short of a more hawkish tone
The most notable change relative to September was the addition of “regulatory decisions regarding energy prices” to the list of risks to the inflation outlook. The other risk factors, namely fiscal policy, economic activity and wage developments, remained unchanged. The inclusion of regulatory decisions is important in the context of government policy changes affecting energy and fuel prices, which could have a significant impact on the inflation path in the coming months.
At the same time, despite inflation rising above the upper bound of the NBP target tolerance band, the press release contained no new wording signalling a greater willingness on the part of the Council to tighten monetary policy. In our view, this is an important signal that the MPC continues to favour a wait-and-see approach and will want to assess the persistence of the rise in inflation, particularly the extent to which it feeds through into core inflation, before making its next decision.
November rate hike remains our baseline scenario, but the risk of no hike is significant
Today’s press release provides no reason for us to change our baseline scenario. We continue to expect a one-off 25bp increase in the reference rate in November, when the MPC reviews the new NBP inflation projection. At the same time, today’s press release does not increase the likelihood of this scenario materialising. The decline in core inflation and the absence of a more hawkish tone despite headline inflation rising to 4.0% suggest that the Council has limited appetite for pre-emptive monetary tightening.
We therefore reiterate the assessment presented in our latest MACROmap that there is a significant risk that the November rate hike will ultimately not materialise. A renewed intervention in the fuel market and a further decline in oil prices could limit the scale and duration of the breach of the upper bound of the NBP target tolerance band. In such a scenario, interest rates could be raised later than November or remain unchanged in the coming months, with the next MPC move being a reference rate cut to 3.50% in Q3 2027.
A. Glapiński’s press conference tomorrow should shed more light on the monetary policy outlook. Of particular importance will be the NBP Governor’s comments on the significance of inflation rising to 4.0%, the outlook for core inflation and the impact of the renewed intervention in the fuel market on the likelihood of a November rate hike.
In our view, the MPC’s decision today to keep interest rates unchanged and the text of the press release published after the meeting are slightly negative for the PLN and Polish bond yields.
