NBP holds rates in June amid heightened inflation risks

At its meeting on 4-5 June, the National Bank of Poland (NBP) decided to extend its monetary policy loosening pause, keeping the reference rate at 5.75% for the eight consecutive meeting. Concurrently, the NBP left the Lombard rate at 6.25%, the deposit rate at 5.25%, the rediscount rate at 5.80% and the discount rate at 5.85%. The decision met market expectations.

The NBP stated that, despite May’s slight uptick in inflation, current inflation dynamics were consistent with the Bank’s target in Q2, curbed by still-subdued economic growth and the zloty’s appreciation. That said, the NBP noted that there was considerable uncertainty regarding price pressures in H2 2024 due to the impact of fiscal and regulatory policies on inflation and inflation expectations. In particular, marked wage growth, largely due to wage increases in the public sector, and potential energy price increases could see inflation rise later this year.

The Central Bank provided no explicit forward guidance on the future direction of interest rates, stating instead that it would “take all necessary actions in order to ensure macroeconomic and financial stability, including, above all, to bring inflation down sustainably to the NBP inflation target in the medium term”. The Bank added that it might intervene in the foreign exchange market. The majority of our panelists continue to expect the NBP to leave rates unchanged until year-end, though several analysts have penciled in 25-50 basis point cuts. The next policy meeting is scheduled for 2-3 July.

ING analyst Adam Antoniak commented on the outlook: “In our view, the Council will not change interest rates in 2024, with reductions not taking place until 2025, and this may only occur after a reversal of the upward trend in inflation, the local peak of which we expect in 1Q25 (including another hike in energy prices, reinstatement of the capacity power fee). We assume that NBP rates will be cut by a total of 75bp next year.” Erste Group analyst Jakub Cery echoed this view: “We expect the price pressures to rise during the summer, however not to an extent which was feared by the members of the MPC earlier this year. Our baseline remains in line with the market consensus until the end of the year, with the first cut possible in Q1 2025. However, if inflation keeps coming below expectations, we see increasing pressure on the MPC to cut in Q4.”

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