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NBP Expected To Remain on Hold Today

POLAND
  • NBP has been receiving external pressure from former Polish policymakers to start hiking rates in response to rising inflation. According to a letter signed by former NBP governors Leszek Balcerowicz, Marek Belka and Hanna Gronkiewicz-Waltz and 13 ex-MPC members, the central bank cannot delay actions to reverse a surge in inflation as it would be a breach of the NBP primary goal, which is maintaining price stability.
  • Last week, economic data showed that inflationary pressures continue to increase in Poland with September CPI inflation coming in higher than expected at 5.8% (vs. 5.5% exp.), up from 5.5% the previous month.
  • However, Governor Glapinksi reiterated at an economic forum in Warsaw yesterday that inflation in Poland continues to be driven by external supply shocks that MPC has no control of. He added that NBP is coming close to adjusting monetary policy and will not hesitate with tightening if needed.
  • Glapinski also mentioned that the NBP has initial plans to buy 100 tons of gold in 2022 to strengthen the country's financial stability. The NBP governor mentioned earlier this year that the share of gold reserves was still 'too low' (around 8% in H1) and that the central bank was targeting to increase the share to 10% at first for a LT target of 20% (of total reserves assets).
  • It seems most likely that the NBP is going to raise rates earlier than expected; market is pricing in a first move at the November meeting as inflation forecasts are going to be reviewed to the upside.
  • At this stage, there are three policymakers (Hardt, Gatnar and Zubelewicz) voting for an 'imminent' rate hike as they mentioned several times that inflation is now demand-driven in Poland and a gradual tightening could ease the inflationary pressures.
  • The NBP is expected to leave its policy rate steady at 0.1% on Wednesday (Oct 6), but then could start a tightening cycle in its November meeting with a first 15bps hike.
  • Forward rates have been surging following the September CPI inflation print, with the 3Mx6M FRA trading 50bps above the Wibor 3M, implying that the market is currently pricing in at least three 15bps hikes by January 2022.
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