News & Analysis

The National Bank of Poland today held rates at 5.75%, as widely expected. With broad consensus expecting no change to be announced today, attention heading into the meeting was instead squarely focused on the updated set of inflation forecasts and what these implied for the future path of policy rates.

Having experienced a notable downgrade, with 2024 inflation now expected to be between 2.8 – 4.3% as opposed to 3.2 – 6.2% expected in the November 2023 projection, the updating projections suggest the NBP should be on track to resume policy easing shortly. That said, the central bank has once again been keen to highlight uncertainty around these forecasts, particularly regarding the impact of fiscal developments.

Indeed, key to these latest forecasts were a set of judgements made by Bank staff on the likely impact of expiring price controls.

At least, that was until yesterday, when Prime Minister Tusk announced an extended mortgage moratorium, alongside suggesting that the government was working on other measures to shield consumers, but that food VAT may return to 5% from May. With the NBP’s March meeting already underway when these announcements were made, it is likely that neither the policy statement nor the new inflation forecasts fully incorporate this new information beyond the charging of food VAT, which Governor Glapinski has already would add 0.9% to CPI.

As such, the immediate readthrough from today’s announcement to the future policy path remains clouded. The revealed preference of policymakers has been to maintain rates in such a scenario, as seen in recent months, where uncertainty over the inflation outlook was used to justify a series of policy holds. Today’s policy statement largely confirms this view, noting that there is substantial uncertainty related to the impact of fiscal and regulatory policies on price developments, and that risks remain skewed to the upside.

Given the recent fiscal news and the limited confidence around the Bank’s inflation forecasts, investors are likely to remain in overwhelming consensus that the NBP won’t move to lower rates anytime soon. Whether or not this is the right assessment will be determined by Governor Glapinski’s press conference tomorrow, where more colour will likely be added on the recent fiscal developments.

For now, markets have taken the policy decision in their stride, with EURPLN trading to just north of 4.3, a level it has failed to confidently break below for three months now despite domestic and external conditions proving supportive for long-PLN positions given its yield profile.

EURPLN trades back to 4.3 as the National Bank of Poland isn’t seen easing anytime soon 

 

 

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