Weekly Focus Poland
MPC left policy rate flat at 1.5%. New inflation and growth projection shows higher GDP growth dynamics amid marginally easing inflationary pressure this year. Inflation rate (due Thursday) is expected to arrive below 2% y/y in February. Employment and nominal wage are expected to grow further. Domestic inflation rate releases support dovish stance of MPC, weaker zloty and lower yields. On other hand, global events (Eurozone and US data releases) should mitigate impact of domestic events.
March 15: We expect inflation rate at 1.9% y/y in February (vs. market consensus at 1.8% y/y) The inflation rate eased at the beginning of the year, as was broadly expected. In February, we expect the inflation rate to have remained below 2%, as the lower growth dynamics of food and transport prices are likely to weigh on the headline CPI. This month, the inflation figures are likely to see revisions, as the new consumer basket will be published. The latest NBP inflation projection shows that inflationary pressure should ease further this year, as average inflation was revised slightly downward. In the two-year horizon, however, the inflation rate should gradually rise to 3% in 2020. Such a development supports the stability of rates scenario not only this year, but in the coming years as well, as was suggested by Glapinski. He did not rule out a scenario in which he would begin communicating that stability of rates is the most likely scenario in 2019 as well.
March 16: Market expects growth of employment at 3.7% y/y in February and nominal wage growth at 7.2% y/y Our point forecast of nominal wage growth is only marginally lower at 7.1% y/y in February. The dynamic growth of wages reflects the tight conditions on the labor market, as the shortage of labor has become a growing obstacle for firms. The dynamic growth of nominal wages supports private consumption, which we expect to remain the driver of growth this year as well.
10Y yields down after dovish MPC press conference Long-term interest rates in Poland touched 3.25% last week, after a dovish press conference following the MPC meeting. While stability of rates is broadly expected this year, Governor Glapinski’s suggestion that the policy rate could remain flat even until 2020 was read as an ‘ultradovish’ message. In a reaction, 10Y yields dropped temporarily. The ECB erased the easing bias that is an indication of a continuous cautious proceeding of the ECB Council, which should gradually lead to upward pressure on yields. This week, Eurozone and US data releases may limit the recent downward pressure stemming from domestic events.
Zloty weakened toward 4.20 vs. EUR The dovish MPC statement and Governor Glapinski’s suggestion that interest rates may remain stable in Poland beyond 2018 was negative for the zloty. The EURPLN even went above 4.20 shortly after the press conference. Currently, we expect the first rate hike in 2019; however, the lack of monetary tightening poses a risk to our current forecast of the zloty, assuming appreciation toward 4.14 vs. the EUR at the end of the year. Global factors (ECB ending its purchase program, FOMC delivering more rate hikes) also limit the strengthening pressure.