National Bank of Poland stays put despite high projected inflation

The National Bank of Poland (NBP) kept its policy rate unchanged at 6.75% at yesterday’s meeting, undershooting consensus and our expectation of a 25pbs hike. This mirrored last month’s decision and indicates that the majority of members on the monetary policy council (MPC) is putting increasing emphasis on deteriorating growth outlook, as opposed to the risk of inflation not coming back to target for a prolonged period.

What you will learn:

• The NBP staff’s new economic projections highlight that the risk of the later is material: mid-points of inflation projection ranges were adjusted up to 13.2% next year, 5.9% in 2024 and 3.5% in 2025, indicating that the bank expects inflation to come back towards the 2.5% target only very gradually, and with notable upside risks.
• However, given zloty’s appreciation and recent signals of planned government spending cuts, we now expect no further rate hikes this cycle. But NBP may be forced to resume hiking if markets start questioning the adequacy of expected fiscal tightening or if inflation overshoots forecasts.