Economic Analysis

In today's Eyeopener:

- Today Czech inflation, US holiday
- NBP Governor: further rate cuts are possible, MPC’s Ludwik Kotecki sees two more this year
- Strong US labour market data, Eurozone services PMI higher than the preliminary print
- EURPLN declined to the levels from before the rate cut, more monetary policy easing priced in

The main event of the passing week was the unexpected rate cut delivered by the MPC. Though it came two months after the previous one and will likely be followed by another one in September, the NBP Governor does not consider it to be a part of a policy-easing cycle. A new NBP projection was also released and in our view provides motivation for further rate cuts. However, it may be more important at the moment how individual MPC members see it and in the coming week, devoid of significant domestic economic data releases, their remarks may be in focus. Abroad, attention will be focused on the US administration’s decision on the future of the so-called reciprocal tariffs (...) 

The NBP Governor said at today's conference that the MPC decided to cut interest rates due to better-than-expected inflation and wage data, despite the fact that earlier many Council members were leaning towards a pause in July. At the same time, he said that this was not the beginning of a policy easing cycle, although the MPC could cut rates further if the data favoured this, i.e. inflation was falling furhter. (…)

We think that Adam Glapinski sounded more dovish than before and expressed willingness to adjust rates further in line with inflation readings. The latest NBP projection already indicates that inflation is moving permanently towards the inflation target. In our view, CPI inflation could fall below 3% in July, which could again prompt the MPC to adjust interest rates at its next meeting in September. 

The Polish economy has returned to a path of over 3% economic growth, which we believe is likely to continue in the coming quarters. We maintain our GDP growth forecast for this year close to 3.5%, and for next year we even foresee a slight acceleration to 3.7%. This is a more optimistic scenario than the consensus, motivated, among other things, by our moderately constructive view of the outlook for the eurozone economy and our conviction that the domestic investment cycle is only just taking off and is slightly lagging earlier expectations, so that its greatest momentum will come in 2026. (...)

In September's Rates and FX Outlook:
 

• Poland’s GDP growth failed to accelerate in 2Q16, with investments surprising negatively (-4.9% y/y), and we think that the second half of the year will see no significant improvement in economic growth. Although private consumption is likely to gain strength in the coming quarters, supported by solid labour income and the new child subsidies, it may take time until investments recover, and the positive impact of net exports will be hard to maintain (export growth may decelerate and imports accelerate). We expect a more significant investment pick-up next year, but by then the impact of the 500+ child benefit programme on consumption will be dissipating. Therefore, we forecast that GDP will grow 3.1% in 2016 and 2.9% in 2017.