Citi Handlowy Estimate That NBP's Rate Cuts Will Boost Inflation By 0.2-0.3pp Next Year

Last week's 75bp rate cut delivered by the NBP remains one of the key themes in the CE3 region, keeping the PLN and CZK under pressure at the start to the new week. In their weekly research note, Citi Handlowy write that Poland has again become the only country in the region with negative real interest rates as they pencil in at least 50bp worth of cuts for the remainder of this year amid the perception that Poland's central bank is prepared to continue its easing cycle.

• City estimate that faster-than expected rate cuts (setting aside their eventual magnitude) will add around 0.2-0.3pp to headline inflation next year, which will delay the return to the NBP target and raises the risk of a reversal of the current disinflationary trend (i.e. inflation could accelerate again at some point in 2024).
• Just like many other analytical desks (including us), Citi highlight the MPC's fixation with inflation at +5% Y/Y, which raises the risk of the Council becoming complacent after reaching that threshold, which translate into an inflation risk premium of up to 250bp being baked into investment decisions.
• Finally, Citi warn that the risk of further PLN weakening has increased, as economies with notably higher inflation than their trading partners may experience nominal depreciation. A softer zloty would be positive for NBP profit, while the government's 2024 budget plan mentions it as a source of PLN6bn in revenue.