National Bank of Poland likely to stand pat in January

The Monetary Policy Committee of the National Bank of Poland is expected to keep the key interest rate unchanged at 1.5 percent during its meeting tomorrow, according to a Societe Generale research report. The MPC might imply the risk of earlier rate hikes, assuming inflation rises closer to the inflation target.

The December meeting’s minutes stated that the council might raise the interest rate inflation pressures suggest a probable CPI overshoot in the mid-term. The council kept the rates on hold during its December meeting because of inflation, GDP growth and uncertainty surrounding domestic and external conditions for monetary policy, the need to safeguard savings and maintain financial market stability.

According to rate setters, price growth will gradually accelerate in the quarters ahead, but might still remain low. They indicated the waning effect of earlier commodity price falls, higher wage growth and expected acceleration of GDP growth. Some rate setters highlighted bigger wage pressure hinted by the firms. Meanwhile, low inflation abroad, low inflation expectations and the output gap are restricting growth of price in Poland.

December’s CPI might affect both the Council and investor behaviour, according to Societe Generale. The Monetary Policy Council reaction is uncertain. It expects lower inflation, so there is a risk that it might alter its rhetoric altogether with the new dataset. The MPC is conservative about changes to monetary policy parameters but a change of view cannot be ruled out after surprising high inflation at the end of 2016.