MNI NBP Preview - October 2023: Heightened Uncertainty

Executive Summary:

• The NBP meeting is "live" with much uncertainty around the decision.
• Consensus looks for a 25bp rate cut after inflation dropped significantly in September.
• Dovish MPC is constrained by concerns over potential for renewed PLN depreciation.

Full preview including a summary of sell-side views here:

MNI NBP Preview - October 2023.pdf

The National Bank of Poland (NBP) is heading for another live meeting. Central bank communications since the press conference following the explosive 75bp rate cut delivered in September have been in short supply but several officials flagged a sense of concern with zloty depreciation. On the other hand, a significant drop in headline inflation recorded in September will play into the hands of the dovish majority in the Monetary Policy Council (MPC). The Council’s dovish bias may result in another cut to the policy rate, but this week’s rate decision is shrouded in uncertainty. Forward guidance has proven to be a poor predictor of monetary policy, while there is widening perception of political pressure ahead of the upcoming elections.

This week’s monetary policy decision will be a balancing act between the realisation of this MPC’s well-documented pro-growth bias and an attempt to avert another deep PLN sell-off. Failing to pre-commit to a pause this week, the Governor effectively left another rate cut on the table, depending on incoming data. The latest key data input (September CPI outturn) provided a dovish signal and will likely encourage the MPC to trim rates once again, albeit not by as much as last time. Loosening policy to the tune of 25bp would allow the Governor to try and patch the holes in the logic used to justify last month’s outsized cut. The official could reiterate that the 75bp cut involved backloaded monetary easing from three months and seek to reassure markets that the NBP’s preferred pace of interest-rate adjustments is 25bp/meeting (as per his guidance from July). A standard-sized move would also provide some reprieve to the zloty, which bore the brunt of last month’s decision.