MNI NBP WATCH: Rates Likely On Hold Despite Below-Target CPI

The National Bank of Poland is likely to hold interest rates at 5.75% for a sixth successive meeting this week, despite March’s CPI inflation falling below the bank’s 2.5% target to 1.9%. ( see MNI EM INTERVIEW: NBP Should Hold Rates, Keep Out Of Politics)

Better-than-expected headline inflation is unlikely to be enough to offset a widely-anticipated increase in price pressures in the second half of this year, following the reintroduction of value-added tax on food, the eventual expiry of the anti-inflation shield on energy prices, and rising real wages.

At around 4.5%, core inflation is still significantly above target, with the gradual improvement to Poland’s growth outlook - led by rising consumer spending - only adding to the sense that the current disinflationary environment is only temporary. (See MNI INTERVIEW: NBP Rate Hold "Short-Sighted" - Ex-Governor)

Labour markets remain tight, with further boosts to private sector pay possible following significant increases in public sector wages earlier this year.

Several Monetary Policy Council members have suggested rates will probably stay at their present levels for some time, possibly the rest of this year, though only one has called consistently for rate hikes in recent months. (See MNI INTERVIEW: Polish CenBank Ignores Core Data-MPC's Tyrowicz)

Overall, the NBP is expected to maintain the cautious tone adopted in recent communications, while emphasising that uncertainty around the inflation outlook continues to be substantial.

Friday’s press conference will be the first since the formal announcement of a motion by the government to dismiss governor Adam Glapinksi.