MNI NBP Review - January 2024: Facing U-Shaped Inflation Path

Executive Summary:

• NBP left interest rates on hold and gave no signals of imminent change of tack.
• The Governor said inflation will soon approach target before rebounding sharply.
• Glapiński said the NBP is not in any rate cycle and decides on an ad hoc basis.
  

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

MNI NBP Review - January 2024.pdf

The National Bank of Poland (NBP) kept interest rates unchanged for the third consecutive meeting, despite a significant decline in headline inflation rate in December. The messaging from Governor Adam Glapiński’s press conference was mixed, but ultimately reinforced expectations that interest rates could remain higher for longer. The Governor pointed to continued uncertainty around fiscal and regulatory policies and emphasised that the Monetary Policy Council (MPC) is not in any rate cycle, ready to react to incoming information, with regulatory and fiscal policies providing key risks under scrutiny.

Despite the Governor’s warning that inflation may turn upwards in 2H2024, we think that the bar for rate hikes is relatively high. Real interest rates will rise further in coming months and Glapiński clearly believes that they are already sufficiently restrictive. Furthermore, he explicitly played down the potential for any imminent tightening, unless we see a significant spike in inflation. However, the NBP may extend the pause in rate cuts beyond the release of its next macroeconomic projection in March. Upside risks to the inflation outlook abound, with the MPC paying close attention to administrative decisions surrounding the anti-inflationary shields.