News & analysis

The National Bank of Poland kicked off the year by maintaining rates at 5.75%, in line with unanimous sell-side consensus and our own pre-release call.

As we noted in our preview of the decision, any change in stance from the NBP today appeared highly unlikely, with policymakers awaiting greater clarity on the new government’s spending plans, and the impact any changes would have on the inflation outlook. This is set to come in March, when a new set of inflation forecasts are published. As such we continue to expect the NBP to maintain its current stance until then, before resuming a moderate pace of policy easing. Given the lack of surprise in today’s announcement, the market reaction has naturally been muted, with the zloty easing modestly off the intra-day high immediately following the announcement.

Leading into this first policy decision of the new year for the NBP, there was little doubt that policymakers would do anything other than leave rates unchanged. As has been noted by several MPC members, and reiterated again in the policy statement today, changes to the fiscal outlook have significantly raised the uncertainty around the likely path for Polish inflation

On one side, the incoming government looks set to pursue a looser fiscal regime than the outgoing administration had proposed last September, likely raising inflationary pressures. Similarly, it now seems likely that the new government will be able to unlock EU funds. This will help boost flagging economic activity, but also further raises upside risks to price growth. On the other side of the equation, however, the immediate inflation outlook now appears somewhat better than before. Flash December inflation readings showed prices growing at 0.1% MoM and 6.1% on the year. This not only undershot consensus expectations that projected 6.5% annual inflation, but with several large monthly price rises from Q1 2023 set to fall out of the annual calculation over coming months, headline inflation should continue to fall rapidly. This disinflation is set to be aided by the government’s recent decision to maintain a freeze on gas and electricity prices for the first half of this year too. Whilst such intervention cannot be continued indefinitely given the expense, and will add to inflation pressure in the longer run, it should be enough to see headline inflation fall back to within the NBP’s tolerance band by March, if the current monthly run rate for inflation is maintained.

Given the risks that policymakers now face on both sides of the current inflation outlook, we expect the MPC will continue to sit on their hands until March, when the next set of macroeconomic forecasts are published. Policymakers will naturally want to see how all of these changes net out in terms of the outlook going forwards, and where they sit with regards to a shifting external environment.

To this point, given our current projection of a eurozone recession, we expect weak external demand to weigh on both economic activity and price growth in Poland over coming months. Moreover, despite considerable efforts, OPEC+ continues to struggle supporting oil prices in the face of weak demand, soft crude prices are helping cool inflationary pressures for energy importers such as Poland. Given this collection of moving parts, there was a notable change to the policy statement suggesting that the MPC now sees inflation falling significantly in coming months, albeit we would observe that this should pick up later in the year as the energy price cap expires and favourable base effects fade.

However, combined with domestic growth that is also likely to be weak and given the Bank’s data dependent approach, we still think this should shift the balance of risks sufficiently for the NBP to resume cutting rates by the time of the March meeting. That said, more concrete direction on the timing and pace of policy easing remain thin on the ground.

As such, attention is now set to shift to Governor Adam Glapinski who will hold his press conference at 14:00 GMT tomorrow, in the hopes of further guidance.



Nick Rees, FX Market Analyst


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