Poland Watch: NBP raises CPI and GDP forecasts

As expected the Monetary Policy Council (MPC) did not change rates yesterday keeping the key one at the historical low of 0.1%. The most interesting point of the statement after the meeting were new CPI and GDP forecasts which were both raised thus additionally signaling little room for further discussions on monetary easing. Instead, the new numbers rather spurred speculations about rate hikes (as visible in the FRA levels) given the average of the forecasted band for CPI in 2023 was indicated at 3.2% yoy and possibly even as high as 4.2%, so above the National Bank of Poland (NBP) target band of 1.5-3.5%. Furthermore, GDP estimates were raised significantly for 2021 from 2.7% yoy to 4% and averages for the next two years are now expected well above 5%. All this would rather suggest that from an economic standpoint there should soon be room to consider interest rate hikes.

However, the new NBP forecasts do not alter our rate scenario, and we still believe the possibility for first rate hikes will be only in late 2022 as the Council has historically preferred to conduct a stabilizing neutral policy and held off with interest rate hikes (especially when compared to the Czech National Bank's approach). Furthermore, there may also be pressure to keep borrowing costs low and not to impede post-pandemic recovery. Finally, it should be noted that there is additional risk to the interest rate outlook stemming from the exchange of most MPC members at the beginning of 2022. Also in this context however, we would not expect a shift to a more hawkish side.

In the near term, NBP meetings may continue to gain attention not only due to the rising CPI and GDP outlook but also in view of awaited decisions about the FX mortgages' future in Poland and any possibilities of NBP involvement. With that in mind, the conference with the NBP Governor set for Friday 2 pm should be of interest, as well as the publication of the full Inflation Report on Monday next week.