PL: No cut by the NBP, new forecasts published

The Monetary Policy Council of the NBP has decided to maintain the interest rate steady at 5.75%. More importantly, the NBP has unveiled insights into its updated economic projections, which now incorporate the impact of energy price deregulation on inflation and GDP growth forecasts.

Since February, inflation has remained within the tolerance band, closely aligning with the target over the past three months. Nonetheless, the incoming deregulation of energy prices is anticipated to cause a surge in inflation, taking it beyond the acceptable range. Consequently, the MPC has consistently communicated that a reduction in rates within this year remains highly improbable. The latest forecast does not suggest any alteration in the MPC's position for the current year; however, it indicates a potential postponement of the initial rate decrease in 2025, shifting from the first to the second quarter.

The updated projections offer enhanced clarity on the implications of energy price deregulation. The previous forecast considered two distinct scenarios: complete deregulation or the maintenance of the existing energy shield. The current forecast assigns a 50% likelihood that the annual inflation rate will range between 3.1% and 4.3% in 2024 (an adjustment from March's 2.8% 4.3%), 3.9% 6.6% in 2025 (previously 2.2% 5.0%), and 1.3% 4.1% in 2026 (formerly 1.5% 4.3%). At the same time, the 50% probability of an annual GDP growth rate lies between 2.3% and 3.7% for 2024 (adjusted from March's 2.7% 4.3%), 2.8% 4.8% for 2025 (previously 3.2% 5.3%), and 1.9% 4.3% for 2026 (formerly 2.0% 4.5%). In summary, while inflation risks are projected to escalate in the following year, the growth forecast has been revised to a marginally more pessimistic outlook.