Was Glapinski That Dovish?

Our intake from NBP Glapinski's conference yesterday in case you missed it...

• Following the decision of the NBP to keep its policy rate steady at 0.1% on Wednesday (as expected), Governor Glapinski confirmed again at the press conference yesterday that inflationary pressures are expected to be temporary and that the central bank forecasts CPI inflation to decrease significantly in 2021.

• This is despite CPI inflation remaining higher than expected at 5.4% vs. Exp. 5.1%, up from 5% the previous month, furthering the divergence from the 3.5% upper tolerance band.

• Glapinski reiterated that CPI is not demand-side driven, but driven by supply shocks (outside of monetary policy control) and that the current rate policy has 'no impact on inflation'.

• November meeting remains key for policy outlook. The outcome is still binary for now, with traders hesitant if the NBP will start its tightening cycle then, or at a later date.

• Forward rates have fallen again following Glapinski's comments, leading to PLN depreciation against major crosses. EUR/PLN touched new September highs.

• FRA 5Mx8M was down nearly 17bps to 53bps yesterday from its 70bps high reached last week (with the spread vs. Wibor 3M trading back below 40bps), before consolidating slightly higher (currently at 58bps).

• Even though the market has perceived the conference as 'dovish', Glapinski's tone has not changed from previous conferences as he has always been in favour of keeping rates low to maximise the economic recovery.

• September and October CPI prints will be crucial in determining the policy outlook, therefore, positive surprises in inflation will certainly result in rising forward rates as odds for a November hike will increase again.

• You cannot rule out a rate hike for the November meeting from today's conference.