NBP kept interest rates unchanged as expected

Headlines

NBP kept interest rates unchanged as expected …

… but left door open for a possible rate cut

On Wednesday, the National Bank of Poland (NBP) left its main interest rate unchanged at 2.5 %. It also dropped its forward guidance to keep rates stable at least until the end of the third quarter. Although both decisions were broadly expected, the zloty slightly strengthened and the outcomes also had an impact on interest rates (see the chart below).

The reason was the comments of NBP President Marek Belka at the following press conference. Based on the new inflation forecast, Mr. Belka said that the decision to drop forward guidance was unequivocal. Nevertheless he warned this did not mean the rate cut should be expected at its next meeting in September. In fact, Belka said the probability of rate cut remained low. Overall, the comments proved to be less dovish than markets had foreseen. On the one hand, the NBP markedly revised its inflation forecast for this and the following year. It also admitted that inflation is likely to fall below zero over the summer and stay very low in the coming months. On the other hand, the NBP remained quite optimistic as regards its outlook for GDP growth; it still forecast about 3.5 % GDP growth in 2014 which is also in line with our forecast. Instead of signalling rate stability, the NBP said that the “decisions in the coming months will depend on the incoming information, which impacts the assessment of the outlook for economic growth and inflation in the medium term.” That is, NBP adopted a “wait-and-see” approach and is clearly going to pay high attention to monthly and quarterly macroeconomic data in the months to come.

We also continue to see the rate cut in September as unlikely. Although we cannot rule out slower growth in the second half of 2014, monthly macro data released so far indicate that the second quarter growth could be close to the first quarter reading (3.4% Y/Y). This should not be enough to persuade the NBP to cut rates at September’s meeting.