News & analysis

The National Bank of Poland has left policy on hold at 5.75% as expected in December, in line with our call and market consensus.

That said, given seemingly unanimous commentary from policymakers following the recent election, suggesting that there was little room to lower rates, anything else would have been a major surprise. Moreover, following recent guidance from MPC members and today’s largely unchanged policy statement, we continue to expect that rates will stay on hold well into next year.

Perhaps trading with a sense of deja-vu given the run back of previous messaging, markets were naturally unmoved on the announcement. Traders are instead left waiting for Governor Glapinsksi’s press conference tomorrow for any further policy guidance.

Leading into this latest policy decision, of the 36 economists that submitted estimates to Bloomberg, all 36 expected a hold in rates. This was despite the NBP cutting rates by 75bp in September and a further 25bp in October before standing pat at the November meeting. But preliminary estimates for headline inflation showed price growth of 6.5% YoY in November, still significantly above the NBP target of 2.5%. Price growth looks set to remain elevated too. Core inflation was estimated at 8.0% YoY in October, the pace of disinflation was seen slowing and labour markets remain tight, suggesting that economic fundamentals favoured a continued hold in rates.

Whilst this view has largely been given credence by members of the MPC, it is notable that the hawkish conversion is a recent one, with economic fundamentals having seemed to carry less weight previously.

Indeed, all 100bp of policy easing delivered so far came in advance of the October elections, with communications since taking on a more hawkish tone. Admittedly, though it has been strenuously denied by policymakers, there is widespread suspicion that those cuts were delivered in aid of the outgoing PiS government. Nonetheless, the November policy statement following the election introduced language suggesting that: “uncertainty about a future course of fiscal and regulatory policies and their impact on inflation” led the MPC to keep rates unchanged. A handful of policymakers have gone further, suggesting explicitly that they would like to see the incoming government’s fiscal plans before resuming monetary easing.

With this yet to happen and with the MPC choosing to run back prior messaging this month, it appears likely that rates will remain on hold for some time.

As to when further rate cuts will eventually take place, there is disagreement amongst analysts, which is unsurprising given the conflicting guidance offered so far by policymakers. For example, MPC member Kotecki has previously stated that “the most likely return to the discussion of what to do next is in March, when we will also have the new NBP inflation projection”, while his colleague Maslowska noted that “there will be further interest rate cuts in the next few months of next year”, with other MPC members sounding even more hawkish. Markets currently foresee between four and five rate cuts next year, though this would still suggest only a modest pace of easing given 6 rate cuts are priced in for the ECB at present.

In our view, the strengthening zloty and continued slowdown in eurozone growth conditions would weigh against maintaining overly restrictive policy, despite suggestions that policy will remain on hold until the end of Q1 at the earliest. As would the latest decline in oil prices, despite concerted efforts by OPEC+ to cut production and prop up prices.

Given this, we are inclined to look for a resumption of rate cuts in March as opposed to the mere discussion of resuming policy easing, as alluded to by Kotecki, though we hold low conviction in this view at present. Governor Glapinsksi’s press conference tomorrow may shed more light on the NBP’s reaction function, though we expect that the current dispute between Glapinski and the incoming government is likely to dominate his remarks. For FX markets however, the NBP’s newfound tolerance to hold rates has proven a boon. Following a significant rally in recent months, EURPLN remains largely unchanged on this latest decision, with the zloty continuing to trade just off year-to-date highs.


Nick Rees, FX Market Analyst


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