MNI NBP Review - October 2023: Reducing Pace Of Easing

Executive Summary:

• The NBP “adjusted” interest rates lower by another 25bp.
• NBP chief was optimistic about the ongoing disinflation.
• The Governor expressed preference for gradual monetary easing.

Full review document including a summary of sell-side views here:

MNI NBP Review - September 2023.pdf

The Monetary Policy Council cut interest rates by 25bp, citing weaker economic activity and easing price pressures. The magnitude of the rate reduction was in line with the consensus call but smaller than market pricing, which was closer to 50bp. Governor Adam Glapiński argued that price pressures are cooling across a range of metrics, while inflation should reach the target in 2025 under conservative assumptions. On the other hand, the official sought to soothe the nerves after the NBP’s unexpected 75bp rate cut delivered in September. Glapiński guided that from now on, the central bank will likely adjust rates in 25bp increments.

Taking it together, we expect the NBP to maintain a slower pace of monetary easing, unless significant unexpected shocks occur. If the MPC acted under political pressure when choosing to trim rates by 75bp, this factor has now been removed from the equation, with parliamentary elections coming up on October 15. For now, the NBP can be expected to deliver at least one (and possibly two) standard-sized 25bp rate reduction by the end of this year. Its firm and evident dovish bias implies that further monetary easing is coming, but the desire to at least partially rebuild the credibility of its communications and to avoid financial market turmoil limits the room for outsized cuts. That being said, the rate outlook may change depending on the outcome of the elections, while the questionable record of official guidance as a predictor of monetary policy further raises uncertainty around the outlook.