NBP: Governor's Presser Was Hawkish But 2025 Cuts Are Not Entirely Off The Table

Governor Adam Glapinski's rhetoric today was unambiguously hawkish, as flagged in our commentary posted during the press conference, but his remarks towards the very end of the media briefing suggested that interest-rate cuts this year cannot be entirely ruled out.

• The bulk of the Governor's press conference was hawkish and one would be hard pressed to find any dovish hints there. The Governor cited the new projection to show that inflation converges with the target only in 2027, assuming an unchanged level of interest rates. In the discussion of uncertainties around the outlook, he placed more emphasis on pro-inflationary risks, while also playing down the costs of restrictive monetary policy for domestic investments. He also stressed that the NBP cannot simply look through regulatory and administrative factors and needs to account for the expected increase in energy prices.
• Answering the final question in the Q&A session about the prospect of rate cuts this year, the Governor said that "if inflation develops differently than in the projection," which could come about on the back of a variety of factors, such as "external, global [factors], energy prices, or here at home, administrative-regulatory measures, some significant decrease in costs - everything is possible." He said that if such factors materialise, inflation drastically decreases and expectations are for its further decline, the MPC could convene and reduce rates. The Governor's suggestion that analysts will know that a rate cut is coming before it is announced suggests that the appearance of these potential disinflationary factors should be relatively obvious.
  • This could normally be part of a non-committal guidance embraced by the Governor earlier this year, but may prove significant given the divergence between market expectations surrounding energy prices and the NBP's assumptions on that front. Communications from government officials and analyses of wholesale electricity prices suggest that a material increase in prices paid by households is unlikely, with many observers deeming the NBP's assumptions unrealistic. Judging by Glapinski's comments at the end of the presser, should the consensus view on the outlook for energy prices prove correct, it could potentially pave the way for interest-rate cuts as soon as this year.
• It should be noted, however, that the NBP sees the economic outlook as shrouded in uncertainty and the Governor signalled a preference for proceeding with caution amid continued focus on fighting inflation. Still, the update on electricity tariffs from Polish regulater, expected later this spring, as well as any announcements on the future of the existing mechanism of capping household electricity prices, will be important factors to watch in the context of the monetary policy outlook.