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Seen Sticking to "Sufficient" 75bps Hike

POLAND
  • With monthly rises in CPI averaging 1.6% so far in 2022, it’s clear that inflationary pressures still have a sufficient tailwind in the Polish economy despite the cumulative 515bps of tightening seen so far this cycle. Comments from NBP members over the past month or so clearly argue that the bank are far from the peak of their tightening cycle, with inflation yet to show sufficient signs of cooling to dull the need for further hikes.
  • Following May’s hike to 5.25%, NBP Governor Glapinski defended the bank’s actions, stating that a 75bps hike was a “sufficient signal” for markets, despite the tightening pace falling short of consensus expectations. The May decision has clearly fed into the market’s thinking, with the median forecast for a rate rise to 6.00% this month.
  • There remain outside expectations for a 100bps rate rise this month (and a minority looking for 50bps), which eye the sequence of strong core CPI readings feeding into inflation expectations as well as the incoming KPO post-pandemic spending package, which is seen amounting to close to PLN 45bln across the next two years. Inflation dynamics continue to point to an NBP that need to retain a solid tightening bias.
  • Core Y/Y CPI reached 7.7% in April, the highest rate since 2000 and three times the rolling five-year average. The price rises continue to be driven by the surge in energy and food costs following the Ukraine war shock, prompting forecasts to constantly be revised higher in recent months. Analysts continue to expect inflation to continue running at a double-digit pace in the coming months, with the extension of the government’s anti-inflation shield failing to completely anchor expectations.
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