PL: New projections from the National Bank as key rate remains stable

The Monetary Policy Council of the NBP has decided to maintain the key interest rate at its current level of 5.75%, aligning with both our expectations and market consensus. Additionally, we have received an updated forecast from the NBP, which has narrowed its inflation projections and revised downward the anticipated economic performance of Poland for the period between 2024 and 2026.

According to the Councils assessment, inflation in Poland is primarily driven by rising energy prices and regulatory factors, coupled with significant wage growth, particularly in the public sector. However, demand and cost pressures remain relatively low, which helps to alleviate domestic inflationary pressures. The appreciation of the zloty has been identified as a counter-inflationary factor; however, the FX rate has weakened in the lead-up to the US elections and is expected to remain volatile. The NBP anticipates that inflation will remain elevated, especially if energy prices increase further in early 2025. Nevertheless, as the effects of these energy price hikes subside and wage growth slows, inflation may revert to the NBPs medium-term target. Future inflation trends will also be influenced by fiscal policies, economic recovery, and labor market conditions.

A detailed review of the NBPs inflation and GDP projections reveals a 50% probability that annual price growth will be 3.63.7% in 2024, 4.26.6% in 2025, and 1.44.1% in 2026. The lower bound for 2025 has been slightly adjusted upward from 3.9%. In terms of GDP growth, the projected ranges are 2.33.1% in 2024, 2.44.3% in 2025, and 1.74.0% in 2026. All three years growth forecasts have been revised downward compared to the July projections, which were 2.33.7% for 2024, 2.84.8% for 2025, and 1.94.3% for 2026. The inflation forecast carries considerable uncertainty and the probability of inflation falling below the central projection in 2025 is greater than that of it exceeding this projection.

Our outlook for monetary policy remains unchanged at this time. We anticipate the first 25 basis point rate cut in the second quarter of next year, with a total reduction of 100 basis points expected by the end of 2025. We will closely monitor tomorrows press conference, as todays statement did not address the US elections and their potential impact on the Monetary Policy Councils decisions.