PL: No change of the key rate from the MPC

After the summer break, the Monetary Policy Council concluded its meeting today. The decision to maintain the key rate at 5.75% was unsurprising. However, there remains limited clarity on the timing of the first rate cut, with the primary drivers of the elevated inflation identified as wages and energy prices.

The MPC's press statement emphasized that demand and cost pressures in Poland remain low, which helps curb domestic inflation. However, inflation is driven by significant wage growth, particularly in the public sector, and rising energy prices in July. These factors are expected to continue influencing inflation in the coming quarters. Once the effects of energy price increases subside, inflation should return to the medium-term target, although higher energy prices may impact inflation expectations.

Throughout the summer, several MPC members have communicated their views on the appropriate timing for a rate cut. In July, Glapinski reinforced a hawkish stance, suggesting that rate cuts might not occur until 2026. This forecast faced opposition from other MPC members, including allies. Last month, Glapinski revised this timeline, indicating that easing could be considered earlier. We also anticipated a mention of the new 2025 budget in todays press release, which is expansionary and thus pro-inflationary. The communique only indirectly addressed this by stating that "inflation will also be influenced by fiscal and regulatory policies, economic recovery pace, and labor market conditions". In our view, the first rate cut could occur at the end of Q2 next year, with risks leaning towards a more delayed action.