PL: NBP publishes new inflation and growth projections, keeps rates steady

The Monetary Policy Council of the NBP has decided to maintain the current interest rate, a choice that aligns with general expectations. However, the more newsworthy aspect of today's press statement is the peek into the revised inflation and growth projections by the NBP, which indicate a slight downward revision in inflation and an upward revision in growth for this year.

In the press statement, the MPC reiterated that the current headline inflation figures remain significantly above the NBP target, primarily due to increases in energy prices and the prices of food and non-alcoholic beverages. Elevated core inflation was also highlighted, as the rapid rise in services prices is still ongoing due high wage growth.

The inflation and growth forecasts present interesting changes compared to the November 2024 predictions. For 2025, inflation should be with a 50% probability between 4.1% and 5.7%, which is lower than the previous range of 4.2% to 6.6%. The GDP growth forecast for 2025 has been adjusted to a range of 2.9% to 4.6%, up from the earlier range of 2.4% to 4.3%. For the following year, the inflation forecast has increased to an interval of 2.0% to 4.8%, compared to the previous range of 1.4% to 4.1%. The GDP growth forecast remains relatively stable, with a slight adjustment to 1.9-4.0%, compared to the earlier range of 1.7-4.0%. For 2027, the 50% probability interval for inflation is now between 1.1% and 3.9%, while the GDP growth is expected to be between 1.1% and 3.5%.

The Council anticipates that inflation will remain significantly above the NBP target this year, driven by increased energy prices, rises in excise duties and administered services prices, as well as the further unfreezing of energy prices in the second half of 2025. Core inflation is also expected to stay elevated in the coming quarters due to continued economic recovery and increased domestic demand. These statements do not provide us with a lot of confidence for rate reductions this year. However, as we still see the current inflation projection to overestimate the price pressures, downward inflation surprises could convince the MPC to cut this year. Nonetheless, the press conference by the Governor should provide more flavor to these forecasts, after which we might re-adjust our projections for the key rate path towards a more hawkish trajectory.