Economic comment

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. 

Today the MPC cut rates by 25bp surprising the market (yet some market participants were betting for a cut) and bringing the reference rate down to 5.00%. The MPC cited the expected decline of CPI below upper limit of tolerance band around the NBP target as the reason to cut rates, but other fragments of the statement did not change much. The MPC still claims that further decisions will depend on the incoming data. Fiscal policy was again named as one of the key risk factors, but this time on the top of the list ahead of the demand pressure, developments in the labour market and the level of administered energy prices (...) Tomorrow the NBP president Adam Glapiński is scheduled to make his speech. We will adjust our expectations on rates after his conference, as today’s decision and statement do not give much visibility whether the MPC wants to start a cycle or just decided to increase its adjustment.

Retail sales slowed to 4.4% y/y in May from 7.6% y/y in April, compared to our forecast of 3.3% y/y and the market consensus of 4.3% y/y. According to the stats office, on a seasonally adjusted basis, sales fell by 2% m/m after rising by 3.5% m/m in April. However, in our view, May's data were rather strong and the seasonally adjusted data apparently did not filter out the effect of Easter properly. 

The data confirm that private consumption will contribute decently to GDP growth this year, supported by continued solid growth in real household income and good consumer sentiment.