Wednesday's Below-Forecast Inflation Data Support Dovish Shift In NBP Expectations

Below summarises the views of several local and foreign sell-side desks on the implications of yesterday's below-forecast CPI data for their NBP rate expectations.

• ING say that the inflation outlook for 2024 is so uncertain that any NBP rate cuts this year would be risky. Still, recent comments from NBP members keep such an option on the table. They estimate the odds of a rate cut in 2H2023 at 30%-40%.
• BOS Bank write that core inflation may ease only gradually due to labour cost dynamics. They believe that elevated CPI and core CPI will prevent the NBP from loosening monetary policy this year. They pencil in the first rate cut for March 2024.
  
• Millenium Bank write that the current environment, specifically core inflation dynamics, low unemployment and the prospect of expansionary fiscal policy, does not open up room for imminent rate cuts, albeit the latest data will provide an argument for the supporters of quick monetary loosening.
• Alior Bank suggest that a notable decline in core inflation will support voices in the MPC suggesting potential for rate cuts by the year-end, albeit they doubt that there is evidence of a lasting positive tendency when it comes to core CPI easing.
  
• Bank Pocztowy note that at the next monetary policy meeting, the NBP will likely point to a notably lower reading of core CPI for May, which may support deliberations of a possible rate cut by the end of 2023.
• PKO BP expect headline inflation to fall below +10% Y/Y in 4Q2023, which can support calls from some MPC members to cautiously lower interest rates by the end of this year.
• JP Morgan say that the latest inflation data will likely reinforce the NBP's optimism about disinflation path, increasing the odds of premature rate cuts being delivered from September onwards.
  
• Goldman Sachs continue to expect a prolonged inflation target overshoot in Poland and maintain their more hawkish view on inflation and rate prospects than the market.