New Inflation Forecast Based On Questionable Assumption, Focus Turns To Governor's Presser

Below summarises the reactions of local sell-side desks in the wake of the MPC's expected decision to keep interest rates on hold. Most note that the new inflation projection is based on an unrealistic assumption that the current anti-inflationary measures will remain in effect through the end of the forecast horizon (end-2026), albeit the MPC acknowledged the uncertainty around the outlook. Governor Adam Glapinski will brief the media at 14:00GMT/15:00CET.

• Bank Pocztowy think that the Council will stick with unchanged rates in the coming months, while a more accurate picture will only be provided by the July inflation projection. Any reasons to cut rates again could only be provided by the November projection, in their view.
• ING observe that the NBP now sees "significant uncertainty" (rather than just "uncertainty") around the inflation outlook, which in their view suggests a hawkish tone of the upcoming press conference. They expect the Governor to say that the new projection is the most optimistic scenario, but the risks to the inflation outlook are tilted to the upside and associated with fiscal and regulatory policies. They think that the upward revision to GDP growth path may be linked from the delay in unblocking Poland's share of post-Covid EU aid, which implies accelerated spending (within 2.5 rather than 5-6 years).
• In mBank's view, the MPC statement did not represent any change in stance. On the other hand, the new projection seems to be painting a goldilocks scenario. However, the projection is based on an unrealistic assumption that current anti-inflationary measures will remain in effect through the forecast horizon. They reaffirm their call for no change to interest rates this year.
• According to Millennium Bank, the statement was consistent with earlier communications. They still expect the NBP to stand pat on rates through much of 2024 but they see some limited room for cuts towards the ened the year, based exchange rate developments, external environment and inflation projection for 2026 showing CPI close to the target. They expect Governor Glapinski to stick with his "wait-and-see" rhetoric today.
  
• PKO note that the NBP now expects inflation to average at +2.9% Y/Y in 2026, which suggests that a quarterly breakdown will show a sustained return to the target in 2H2026. They note that the MPC added the labour market situation to its list of upside risks to the inflation outlook. They think that the question of rate cuts this year remains open and is still part of their baseline scenario.
  
• Santander point to the questionable assumption that anti-inflation shields will be maintained. They interpret the statement as a confirmation that the Council does not want to change interest rates anytime soon, which will be supported by accelerating growth and upside risks to the inflation outlook. They expect rates to remain on hold for at least another year.